New highs for this month's up trend were made Wednesday. We have been watching the day to day changes in wholesale beef and volume/open interest to gauge when this market could post a near term top. Our overall plan has been that bulls would run the show into the end of the month then give up the reigns in May for a push lower into June. Wholesale beef was mixed Wednesday. Though futures hit a new high for this up trend we will note they were not able to hold those levels into the close. When markets change direction they generally go from bull to consolidation to bear. We would suggest this market is entering into the consolidation portion of the cycle.
Why Upcoming Supplies Will Be a Problem: Everyone knows feedlots are losing solid money on all cattle being marketed. We will not bring that topic up here. However, there has been talk suggesting they are actively marketing cattle now just to get rid of those numbers. That is incorrect. The latest data we have, which is two weeks delayed, shows both steer and heifer weights 22 lbs over last year. Those are carcass weights. Instead of actively marketing cattle, like they should be, they are compounding the upcoming supply problem by holding onto market ready cattle and simply slowing down on buying new replacements. Sure, that is good for the supply picture four to six months from now. However, it worsens the near term supply problem. 1) Slaughters rise straight into mid-June as they do every year anyway. 2) This year's supply increase will be even larger than last year due to the extra placements we did this winter. Keep in mind placements from September through February were 8% higher. 3) Now add to that the fact we are not marketing cattle, which should have been gone two to three weeks ago.
Live Cattle Pricing: April expired Wednesday at $91.65. This leaves June as the next deliverable contract with a closing price of $93.47. A normal basis at the end of June is for cash cattle to have a $1.17 premium to June futures. This implies futures believe cash cattle will be $94.64 ($94/$95) at the end of June. Last week's action was $92. So in essence, though supplies will increase in the coming weeks as noted above, and demand slows down after Memorial Day, futures are suggesting cash cattle will actually increase from now into the end of June. It is a nice thought but hard to justify. We still hold an $88 downside objective for June futures. For producers we are covered on 100% of marketing's for the summer period using June and August futures. We remain bullish for everything after summer and have no hedges on for that period. For speculative trading we are suggesting the December/June live cattle spread is the best way to probe for a top here. It posted a near term bottom on Friday at $10.55 premium to the December and ended at $10.82 Wednesday. Our target is $15.
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