An online auction meant to help set prices in the volatile cattle market is in trouble.
Superior Livestock Auction LLC launched the Fed Cattle Exchange last year to help guide the often opaque cattle market, where low liquidity can leave participants scrounging for timely price data. But breakdowns and dwindling participation have dogged the weekly online auction.
The exchange has crashed multiple times so far this month; last week’s auction was called off altogether.
As a result, traders say the auction isn’t providing the promised reality check for pricing in the $19 billion cattle-futures market. Without real-time data on the price meatpackers are paying for the cattle they purchase from feedlots, traders say futures have become too speculative.
Some believe a market that is meant to provide a hedge against what cattle might cost in the future has become dislocated from the real world, leaving feedlots unsure what their herds are worth. The CME stopped listing new live cattle contracts last year as concerns over their volatility intensified. This month, the CME said it would relist contracts that better mirror realworld cattle trades and improve efficiency by redefining the quality of the beef in question and protocol for the cattle’s physical delivery. The CME also increased by about 15 percemt the collateral needed to place bets on its exchanges. The new auctions lost some momentum last year during a nearly three-month outage to address technical issues. Sales on the Fed Cattle Exchange have dwindled to as little as a few hundred in recent weeks from a few thousand earlier this year.
Analysts say the lower volume partly reflects a cattle-supply pinch that has led feedyards to strike deals with slaughterhouses in advance.
Corn closed the week $.25 1/4 lower. Last week, private exporters did not report any sales.
Weekly export sales of corn showed a total of 25.7 mb (652,800 mt) with 20.8 mb (528,800 mt) for the 2016-2017 marketing year. This was above the 6.2 mb (158,400 mt) needed this week to be on pace with USDA’s June demand projection of 2.225 bb.
In the weekly crop conditions report, U.S. corn crop conditions came in at 67 percent good/excellent, unchanged from last week but below expectations of 68 percent (68-70 percent range of ideas) vs.67 percent last week and 75 percentlast year.
U.S. weekly ethanol production came in at 990,000 barrels/day, down 12,000 bpd from the week prior and the 2nd week of the last 3 to fall below 1,000,000 barrels/day. Ethanol stocks are down .2 million barrels to 22.3 million barrels.
The corn market failed near resistance and turned lower on benign weather into the end of June. While there is still time for a weather market to develop, that time is running out as good rains in the eastern cornbelt leaves the western belt as the lone dry area remaining.
Corn is pollinating in Missouri and rains will help the crop reach full yield potential.
Strategy and outlook
Look to make sales and lock in prices during rallies over the next 4 weeks.
Soybeans closed the week $.34 3/4 lower. Last week, private exporters did not report any private sales.
Weekly export sales of soybeans showed a total of 4.2 mb (115,000 mt) with 4.1 mb (111,200 mt) for the 2016-2017 marketing year. This raised total sales to 2.170 bb, 6 percent above USDA’s June demand projection of 2.050bb. The weekly crop progress report U.S. soybean crop conditions improved 1percent from last week to 67 percent good/excellent vs 68 percent expected (66-70 percent range of ideas) vs. 66 percent last week and 73 percent last year.)
U.S. soybean plantingis now 96 percent complete versus 97 percent expected (95-98 percent range of ideas), 92 percent last week, 95 percent last year and 93 percent average.
The soybean market is falling dangerously close to major long term weekly support that has supported the market in 2015 and 2016. Without a weather threat on the horizon, prices are likely to continue to work lower.
There is still time for a weather rally to develop but heavy selling looks to cap any rally attempts.
Strategy and outlook
Producers need to make new crop sales on rallies during the next 4 weeks as large supplies of product will be hitting the market from not only the U.S. but also from South America.
This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.
Brian Hoops can be reached at (605) 660-1155.
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