Cattle Markets Break Down

Ben DiCostanzoGeneral Commentary

August Feeder Cattle opened lower, at the high of the day (259.00) and the broke down to the low at 255.80. This was in place by late morning and it drifted into the close, settling near the low at 256.40. This week saw Feeders make a new all-time high for the lead contract (highest volume) at 264.95 and then fall apart. The futures surge to the new high took it to a stiff premium to the index, which was a little over 16 handles above the index. After making the high, futures reversed course and put in a bearish candlestick (in my opinion). Thursday saw follow-through to the downside and then buying into the close. Friday took out Thursday’s low and it settled below support at the rising 21-DMA now at 256.925. The breakdown sucked half the premium out of the futures/ index spread. The weak close and elimination of the premium could put more pressure on futures on the open on Monday. Lots of time, when the narrowing starts, it continues until the premium is almost eliminated. The positive from all this selling, is in a bull market as the premium dissipates, bulls get interested again and then when the snapback slows, the rally resumes, in my opinion.  This should put premium back into the futures end. We’ll see!… A failure from settlement could see price test support at 254.30. Support then comes in at 252.35. If price retakes the 21-DMA, price could test resistance at 257.925. A break out above here could see a move towards resistance at the rising 13-DMA, now at 259.375.

The Feeder Cattle Index decreased and is at 248.24 as of 05/30/2024. 

August Live Cattle also opened at its high of the day at 179.775. It broke down to its low by late morning at 177.775 and crept higher to settle at 178.45. The breakdown took price below support at 179.40, the rising 21-DMA now at 178.525 and the key level at 178.10. Settlement was just below the 21-DMA. Futures traders don’t seem to care that the cash market remains strong. It seems their expectations are for packers to regain control of the market and crash prices. It seems like every news bit has a negative emphasis to it such as China blocking imports of beef from a plant in Greeley, Colorado. Or, bird flu infects another worker on a DAIRY farm and suffers from pink eye symptoms. Oh, my goodness, isolate the person!… Then there is stuff about gain of function blah, blah, blah… All (it seems) to direct algos to sell Mortimer sell! Maybe we can get producers to give in and sell cash at lower prices if futures collapse. The panic is ever present in the packer as last week saw a new all-time high average price at 190.08. They were desperate to lower prices and it looks like for this week they were successful as the preliminary guess is for an average at 187.42. With the drop off coming from the South. The North basically stayed at the higher levels. Packers will continue to pull back on slaughter. The question is… is it because they think they can back up the system or is it because the cattle are just not there for them to buy? I think it’s because the numbers aren’t there and packers are having producers fatten cattle as much as they can to keep production within last year’s parameters. They are paying for the weight and not backing off. They need the weight and as the numbers thin further, cash could continue higher. We’ll see!… If price can re-take the 21-DMA, it could test resistance at 179.40. Resistance then comes in at 181.175. If price can’t hold settlement, it could re-test support at 178.10. Support then comes in at declining 50-DMA now at 177.35.

Boxed beef cutouts were lower as choice cutouts decreased 0.84 to 313.20 and select decreased 0.81 to 301.71. The choice/ select spread narrowed and is at 11.50 and the load count was 127.

Friday’s estimated slaughter is 122,000, which is above last week’s 117,000 and below last year’s 124,134. Saturday slaughter is expected to be 43,000, which is above last week’s 4,000 and below last year’s 64,355. The estimated slaughter for the week (so far) is 540,000, which is below last week’s 607,000 and last year’s 568,423.

The USDA report LM_Ct131 states: Thus far for Friday in the Texas Panhandle negotiated cash has been at a standstill. The most recent market in the Texas Panhandle was Thursday with live FOB purchases at 186.00. In Kansas negotiated cash trading has been slow on light to moderate trade. Compared to Thursday in Kansas Live FOB purchases traded steady at 186.00. In Nebraska and the Western Cornbelt negotiated cash has been moderate on trade and demand. Compared to last week in Nebraska live FOB purchases traded 2.00 lower at 190.00. Compared to last week dressed delivered purchases traded at 3.00 lower 301.00. Compared to last week in the Western Cornbelt live FOB purchases traded steady from 190.00-192.00. Last week dressed delivered purchases traded from 302.00-304.00, on a light test.

The USDA is indicating cash trades for live cattle from 183.00 – 193.00 and from 298.00 – 309.00 on a dressed basis (so far).

For those interested I hold a weekly livestock webinar on Tuesdays and my next webinar will be Tuesday, June 04, 2024, at 3:00 pm. It is free for anyone who wants to sign up and the link for sign up is below. If you cannot attend live a recording will be sent to your email upon completion of the webinar.

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**Call me for a free consultation for a marketing plan regarding your livestock needs.**

Ben DiCostanzo

Senior Market Strategist

Walsh Trading, Inc.

Direct: 312.957.4163

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