Sort & Cull

That muffled baying you heard this week came from the dogs of summer, newly whelped and soon to be unleashed for their long pant through July and August. Yet parts of the meat market seemed to find the early ruckus more ominous than others.

On one hand, the wholesale beef trade appeared to dismiss the barking as something entirely unrelated to dangerous potential. Indeed, given the fact that cut-outs had rallied through June by more than $12, spot demand seemed as cool and collected as a fat cat ensconced on Grandma's lap.

On the other hand, traders of cattle futures apparently heard the brewing snarls, growls, and yips with the same anticipatory alarm that Hillary might experience in the face of hackers tampering with Benghazi e-mails. For example, from Tuesday's high of 152.25 to Thursday's low of 147.85, the August live contract broke 440 points on nothing more substantially bearish than the specter of summer heat and melting demand.

So what should we make of this traditional metaphor of demand? Will the dog days of summer ahead be more bark than bite, more bite than bark, or a price-crippling measure of both?

Well, if it comes down to just a matter of hot temperatures, the official 30-day forecast suggests the patio grill may not be as cursed as many midsummer bears fear. While parts of the East and West Coasts will be typically sweltering through July, a larger section of the Midwest and Central Plains could actually enjoy below normal temps.

But even if such moderation turns out to be predictable, current handlers of summer dogs may be stirring the pack into a frenzy as much with sticks of ample meat supplies as prods of struggling demand. Although weekly cattle slaughter since Memorial Day has not climbed as aggressively as once thought, the pace of late June tonnage will at least hold steady through late July or early August. Furthermore, the front-end of showlists will remain relatively heavy, especially vulnerable to whatever spikes of extreme seasonal heat do develop.

Finally, I'm a bit unnerved by doggy potential thanks to the unfortunate absence of a seasonal break in hog receipts. Theoretically, there's still time for the weekly kill to drop under 2 million head. But given the jammed finishing floor suggested by the June 1 inventory released this afternoon, it doesn't look like a good bet.

In short, this week's barking of dog days proved particularly annoying to futures as traders imagined the possibility of a large serving of red meat in general through the first half of the third quarter. In order to shut the mutts up, the market must somehow win both cool temperature and unseasonably strong demand.

For more from John see www.feelofthemarket.com

(CZ)

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