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Beef Prices Rally as Grilling Season Begins

Friday, April 21, 2017

Today's Spotlight Market

This afternoon, livestock traders will stay late after the close of trading as the USDA will release data for the monthly Cattle on Feed report due out at 2 pm Chicago time. Here are the average pre-report estimates for the three main categories covered in this report:

Placements (March 2017): 106.3% of last year
Marketings (March 2017): 109.2% of last year
On-Feed (April 1): 99.6% of last year

Fundamentals

Here in Chicago, we are finally ready to call an end to winter and begin to indulge in the fun activities of spring including getting the grill out of the garage and prepare for barbeque season. However, those tasty steaks and briskets will not come at bargain prices this season as strong retail demand for beef is encouraging meat packers to bid market ready Cattle prices higher. Cash market sources report that meat packers were paying $130 per hundredweight for Cattle in the southern Plains, a steep premium to the lead-month June Live Cattle futures which are currently trading near the 116.500 price level as of this writing. Wholesale box beef prices are running about $5 higher than last week which reflects the current strong demand for beef from retailers and restaurants. Grillers can take some solace that both pork and poultry prices are not seeing the strong increases like for beef so we may see grillers turning towards pork chops or chicken legs instead of steaks and burgers for their barbecue feasts this summer.

Technical Notes

Looking at the daily chart for June Live Cattle futures, we notice prices made a new contract high at 117.475 on Thursday, before some profit-taking selling from weak longs moved prices about a full point lower by the close of trading. However, the trade remains firmly in the bull camp with prices currently well above both the 20 and 200-day moving averages and the current $16 futures discount to cash adding support to the market. We do note that the 14-day RSI has moved into overbought territory with a current reading of 75.03, so we may be due for a near-term correction in prices, especially if we see cash prices start to retreat. However, the large futures to cash price discount may cushion the extent of any futures price correction. Thursday's high at 117.475 looks to be the new resistance level for the June futures, with chart support seen at the April 5 low of 108.675.

Mike Zarembski, Senior Commodity Analyst