Fundamentally led live cattle futures traders probably are focused on total meat supplies and not just beef or even cattle numbers, said a well-known market analyst Wednesday.
John Nalivka, president of Sterling Marketing Inc., said live cattle futures prices continue to fall, and have reached a point that many consider to be oversold.
Within the last week, some have wondered why the market has been in such a downfall. Declines seemed to outweigh the effect of cattle numbers, and prices drop past even technical support. Some even compared the current cattle situation to the hog market debacle of 1998 where fourth-quarter prices dropped below $10 per cwt as supplies outran industry capacity.
Nalivka said the current pressure in the cattle market was coming from a rapid buildup of per capita total meat and poultry supplies, and that there was no letup in sight.
What’s really important, he said, was that total per capita meat and poultry supplies declined 10% in the seven-year period from 2007 to 2014, and that they are on track to rise 7% in the two years since.
In 2007, total meat and poultry supplies amounted to a record of about 222 pounds. By 2014, the total had dropped to 202 pounds. Nalivka projected 2016 totals at about 214 pounds, and next year to be around 217 to 218 pounds.
The severe, seven-year drop in supplies was the result of a perfect storm of market influences. Severe drought extended a natural liquidation phase in the cattle industry, the Porcine Epidemic Diarrhea virus killed millions of baby pigs.
Since 2014, strong US consumer demand and a weak US dollar, which fostered increased export demand influenced producers to boost production back toward 2007 levels.
In the last year, however, a stronger US dollar may have caused trader angst about rising cooler meat and poultry supplies.
Without a change in direction, meat and poultry supplies could rise another percentage point through next year, making the total gain 8% in three years.
TECHNICALS POINTING THE WAY UP?
Some traders Wednesday may have thought live cattle futures was a good investment, since the market turned higher and provided other traders with some indicators that a rally may be in progress.
During the latest fall from the swing high of $116.35 per cwt in the Oct live cattle futures contract to Tuesday’s contract low of $99.37, the contract expanded the Bollinger Bands to a point not seen in the life of this contract. Wider Bollinger Bands, which are based on moving averages, indicate increased volatility. This means a turn upward could be fast.
Wednesday’s trade formed a bullish engulfing pattern on candlestick charts, which might be enough to pull some speculators in. Others will want to see confirmation of Wednesday’s move before stepping in. After all, per capita meat and poultry supplies are not getting any smaller.
CASH CATTLE MARKETS QUIET
Cash cattle markets Wednesday were quiet after trading last week at mostly $110 per cwt on a live basis and $175 dressed. Bids and offers remain undefined, but many expect a lower trade this week.
The USDA’s choice cutout Wednesday was $0.37 per cwt higher at $190.65, while select was off $2.87 at $183.66. The choice/select spread widened to $6.99 from $3.75 with 159 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $138.29 per cwt, down $0.48. This compares with the Sep settlement Wednesday of $133.15, up $2.65.