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.
Please note this is just a small sampling of commentary available to clients. Please visit www.nesvick.com for more information.
The information contained herein has been taken from trade and statistical services and other sources we believe are reliable. Opinions expressed reflect judgments at this date and are subject to change without notice. These materials represent the opinions and viewpoints of the author and do not necessarily reflect the opinions or trading strategies of Nesvick Trading Group LLC and its subsidiaries. Nesvick Trading Group, LLC does not guarantee that such information is accurate or complete and it should not be relied upon as such. Officers, employees, and affiliates of Nesvick Trading Group, LLC may or may not, from time to time, have long or short positions in, and buy or sell, the securities and derivatives (for their own account or others), if any, referred to in this commentary. There is risk of loss in trading futures and options and it is not suitable for all investors. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RETURNS. Nesvick Trading Group LLC is not responsible for any redistribution of this material by third parties or any trading decision taken by persons not intended to view this material.