Sort & Cull

Anyone who's been around the cattle block more than once can tell you that when it comes to keeping the bullish faith, traders of June live cattle futures tend to be a grouchy and irritable bunch.

Specifically, such naysaying typically manifests in terms of large board discounts vis-a-vis feedlot cash throughout the month of May. Over the last five years, the average late spring/early summer basis slowly shifted from being $3.50 over in early May to $2 over right after Memorial Day to virtually flat by late June.

The cautious anticipators of June aren't so much hopeless sourpusses as they are calloused students of market history. More times than not, increasing fed offerings and cooling beef demand from the first blush of spring fever in early April (albeit missing in action this year) to the sun-burning heat of midsummer causes the feedlot trade to fall as much as $10 over the retreating course of several months.

In keeping a safe distance from the very best fireworks spring bulls can put the match to, the wet-wicks and duds of June can be seen as merely prudent by avoiding the potential, if not probable, crush of long liquidation.

Still, that doesn't make these rational spoilsports any less frustrating to bullish-minded producers who want and need a higher country trade -- or at least a degree of cash stability. And for strictly cash players, there's always plenty of frustration (I suppose you could call it envy) left over to vent on basis-happy hedgers who are uninterested in just digging in their heels for the highest packer bid.

While all of this is largely par for the second quarter course, the demotion crew at work this season in the June live contract hardly seems like your run-of-the-mill malcontents. Just take a look at the extraordinarily deep hole further excavated in the live pit just before the weekend break.

June closed today at 119.40, $6 below where the majority of live trades seem to land this week. Although such a basis in only marginally stronger than the same period in 2012, it involves a cash premium nearly twice as large as the five-year average.

So why are early summer traders expecting such an unusually large shoe to drop between now and the end of June? In a word: sticker-shock.

The choice box has closed the week at the staggering height of $209.51, $4.63 higher than last Friday, $20 greater than the April low, and the seventh all-time high in the last eleven days.

Just this morning, I heard two jokes about the soaring price of beef, one insisting that it at least made caviar look cheap, and the other suggesting that it would soon have a menu listing like lobster (i.e., "MARKET PRICE").

Right or wrong, defenders of the enormous June discount are simply scared to death that once consumers are asked to fully face this record-breaking run-up in price they will run for the hills with little interest in returning anytime soon.

http://www.feelofthemarket.com/…

(AG)

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