With some expectations that beef prices are near a peak and a premium of futures over cash, the market remains vulnerable to increased speculative long liquidation selling. If packers sense that beef prices may ease, there is less incentive to pay-up in the cash market for live inventory.
In addition, feedlots are not too keen on holding cattle any longer than they need to and the market is also seeing an increase in non-fed and cow slaughter which could add to the short-term supply. There were no new deliveries and 36 retenders overnight, which might help ease the pressure on the August contract.
October cattle closed moderately lower on the session yesterday and pushed to the lowest level since August 8th. News of 36 new deliveries and 10 retenders was enough to drive August cattle back under 120, which may have left the October contract looking a bit rich against the spot market. The market saw some choppy trade early in the session but pushed lower into the close.
Very strong grain prices helped to pressure the market as traders remain nervous that some producers will be squeezed with higher grain prices and a lack of pasture, and this will force a higher than expected slaughter in the next few months. This helped drive feeder cattle sharply lower. In addition, the premium of October to last week's cash helped to pressure.
Packer bids emerged at $118 for the cash market this week with offers at $123.00. Cash traded at $120-$121 last week. Traders also believe beef prices are near a short-term peak once retailers fully book Labor Day features. Beef prices hit the highest level since July 2nd earlier this week. Boxed beef cutout values were down 16 cents at mid-session yesterday and closed 3 cents lower at $193.82. This was up from $189.21 the prior week.
Slaughter came in higher than expected at 130,000 head. This brings the total for the week so far to 259,000 head, up from 250,000 last week at this time and up from 255,000 a year ago. There will be a USDA Cold Storage report this afternoon.
*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.