Cattle Futures Have Short-Term Support

Jun live cattle futures Thursday shot higher, extending gains from Wednesday’s sharp rally as technical buying points were triggered, but fundamental support is thin, and the rally may not last.

Such technical rallies have a way of running out of gas quickly, and the fundamentals that started this week’s rally may be thwarted by hedge selling, pre-weekend day-trader long profit taking and investor short selling.  Still, there is reason for bullishly construed traders to think prices could go up a bit more.

The fundamental news that got the rally started was two-pronged:  USDA reported steer slaughter weights had dropped eight pounds from the previous week.  Slaughter also is rising.  The combination points to increased beef production for the next few weeks or months as feedlots liquidate overly large and fat cattle.

The bullish market influence from that arises from fears of shorter fed cattle supplies, or at least smaller fed cattle, in the future, resulting in less beef production and higher product prices.  This, in turn, could lead to higher fed cattle prices.

The second prong was a USDA report that weekly beef exports hit a marketing-year high last week at 12,500 tonnes, up 13% from the previous week and up 8% from the four-week average.

 

HOPE FOR BULLS

 

Hope for bullishly aligned traders, at least in the short term, comes from the technical side.  The contract closed above all major short-term moving averages on Thursday.

That extended the week’s move and gave credence to Wednesday’s close above the four- and nine-day moving averages.  The faster-moving four-day line has crossed above the relatively slower-moving nine-day line, pointing to a more bullishly aligned market sentiment.

Additionally, the four- and nine-day moving averages are pointing higher, indicating an upward trend.

A 50% retracement of the near-term high to the near-term low would be about $123 per cwt.  This could be major resistance and a target for short-trading investors.  If this is the case, there is at least another day of higher prices before the rally flames out.

 

OVERBOUGHT OR NOT?

 

The Relative Strength Index is 50.39, neutral territory, but those who follow Bollinger Bands will say the market is overbought.  However, traders may await confirmation in the form of price weakness before acting since the RSI is neutral.

Stochastics studies allow for more rally in the short term, but the longer-term trend is down, say TradingCharts.com analysts.

Investors also will want to pay attention to open interest, which is declining for the Jun contract.  While this is normal in the lifespan of a futures contract, it also means lower liquidity.

 

CASH CATTLE MARKET QUIET

 

Cash cattle markets Thursday were quiet with bids of $118 per cwt on a live basis were heard in Texas against $126 to $127 asking prices.  In dressed markets, bids were $190 to $191 with asking prices undefined.

Markets last week traded at $124 per cwt on a live basis and $195 to $197 on a dressed basis.  Both were down $3 to $5 from the previous week.

The USDA’s choice cutout Thursday was somewhat higher at $204.42 per cwt, up $0.32, while select was up $0.15 at $195.50.  The choice/select spread narrowed to $8.92 from $9.09 with 127 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Wednesday was $142.94 per cwt, down $0.44.  This compares with the May settlement Thursday of $147.95, up $3.02.