Livestock –
Easy come, easy go for LC futures so far this week. Monday’s surprising limit up reaction to a supposedly negative COF report on Friday was almost entirely reversed in yesterday’s surprisingly weak action. In both cases, Monday and Tuesday, I really don’t have great answers to explain the moves. If you recall yesterday I argued that the Monday rally might have been due to the fact that showlists might have peaked here. For yesterday’s sharp decline, I suppose I’m left pointing towards the sharp weakness in boxes to explain the negative sentiment. As you’ve likely seen, boxes were down sharply (choice down $4.66) and the choice-select spread is continuing its seasonal decline as well. Expectations now appear to be for the decline in boxes this week to be $10-15 in total (Friday-to-Friday).
However, I think it is also worth keeping in mind that despite the weakness in boxes, estimated packer margins are still very solid. In fact, after looking at the seasonal view of estimated packer margins below, I’d say they’re more than just “solid”. I do find it interesting that there is a seasonal tendency for packer margins to decline during the first half of July, and given expectations for beef prices in the near future it would seem reasonable packer margins will follow this trend again this year. However, dropping from these levels would still keep packer margins pretty solid, depending of course on how cattle/beef trade works out in the next few weeks.
I’m told there was a labor issue at one of Tyson’s beef plants yesterday. Details are sketchy on the reasoning, but whatever it is will likely result in yesterday’s slaughter being revised lower and this could potentially weigh on the kill for another few days until it is resolved.
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