Morning Cattle Market Report 9/17

By Roger Baettig | September 17 2012 10:36 AM

The market remains somewhat vulnerable to more selling with a weak chart pattern but declining supply and the outlook for tightening supply into the 4th quarter should help to provide underlying support. In fact, beef production is expected to fall 505 million pounds from this quarter to the 4th quarter, which will be the third largest drop on record.

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October cattle closed moderately lower on the session and saw follow-through selling from Thursday's reversal but still managed to close higher on the week. The market inched lower in quiet trade as some traders exited long futures positions after the reversal from six-month highs Thursday.

The market found some support early from higher cash trade but traders are concerned that beef prices have not kept up with cash cattle trends, and that weaker packer margins could result in a slower slaughter schedule for this week. Packers are attempting to boost beef prices and traders remain concerned that consumers will resist higher beef due to sharply higher gasoline prices and weaker pork prices.

Boxed beef cutout values were up 4 cents at mid-session Friday and closed 14 cents higher at $191.54. This was up from $190.73 the prior week. The surge up in the Texas cash market to the $126.00 to $127.00 level last week left the October cattle premium to the cash and traders nervous over hefty losses for packer margins and the possibility that packers cut-back on kills. The sharply lower US Dollar and a surge higher in the stock market have helped to provide underlying support.

Slaughter came in well above expectations at 127,000 head Friday and 20,000 head for Saturday. This brought the total for last week to 647,000 head, up from 551,000 the previous week but down from 659,000 a year ago.

The Commitments of Traders reports as of September 11th showed non-commercial traders were net long 48,300 contracts, an increase of 6,449 for the week and the fund buying trend is seen as a short-term positive force. Non-commercial and nonreportable combined traders held a net long of 22,814 contracts, up 5,423. Commodity Index traders held a net long of 116,429 contracts, up 382.

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