The market pushed higher overnight to a new 6-month high, as traders saw tightening supply ahead as a something that could continue to support the cash market. There are plenty of outside market forces that are supportive to commodity markets in general, and the uptrend in cattle and outlook for tighter supply into the 4th quarter seems to be attracting new fund trader buying. Open interest has been up nearly 20,000 contracts over the past few weeks.
October cattle traded sharply higher on the session into the close yesterday and managed to push to the highest level since late March. Traders see a lower showlist this week as a factor that should support steady to higher trade in the cash market. A sharp drop in the US dollar and ideas that beef supply will tighten ahead lent additional support.
Fears of consumer resistance to higher beef prices in a period of weaker pork values and surging gasoline prices at the pump were seen as limiting forces. However, the steady jump in beef prices recently has traders a little less concerned. Boxed beef cutout values were up $1.12 at mid-session yesterday and closed 21 cents higher at $191.53. This was up from $190.45 the previous week.
December cattle also pushed to its highest level since late March, as it was supported by the index fund roll. Lower grain prices helped to support feeder cattle, and this helped to spark buying in cattle as well.
Slaughter came in higher than expected at 128,000 head. This can sometimes mean that packer demand is on the rise. This brings the total for the week so far to 253,000 head, up from 132,000 last week at this time (holiday-shortened week) but down from 265,000 a year ago. However, packer margins have shifted from black last week to red this week, and packers may be reluctant to "pay-up" in the cash market unless there is confidence that beef prices will be higher.
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