The information and opinions expressed below are based on my analysis of price behavior and chart activity
Has the Bullish trend in Cattle prices been re-ignited?
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December Live Cattle (Daily)
- This past Friday, after the close the USDA released the monthly Cattle on Feed report. All Cattle for slaughter came in 1% lower than last year, while Placements came in down 10% and Marketings down 14% from last year at this time. If you would like the view the USDA report, you can click here. Over the weekend, Sunday specifically, the USDA also posted a press release stating the New World Screwworm is now found only 70 miles from our southern border. The full text of that release can be found here. While the Screwworm is a problem, and I think a bullish one, some market participants focused on the 7th paragraph. That suggests, vaguely, that the USDA is working on something to support cattle producers. They do not suggest what, specifically, that may or may not entail. There were several speculative rumors that I heard, but until they’re confirmed fact, I won’t guess at what the government is going to do. Personally, I don’t think that much can be done to immediately increase cattle numbers in the US. Even if the border with Mexico were to re-open today, we’re still about a million head less, due to that closure. I do think that our herd numbers are very low, historically low even, but I’m quite convinced there will be no short-term fix that lasts. Wait to see what Uncle Sam may have up his sleeve…
- From a technical point of view, I think the market looks strong. Following 5 days of negative price activity to start the month of September, prices then went sideways for 7-8 sessions, before breaking back to the upside today. Looking at the chart above, you may notice that the 5- and 10-day moving averages (blue and red) made a bullish crossover with Friday’s trade. The last bullish cross like that was on July 1st, and prices rallied for nearly 2 months following. I don’t think this turn higher will last that long, but we’ll have to stay tuned to find out. The 50-day average (green) acted as solid support in late June-early July, as did the 100-day average (grey) when it was tested in April. The 50-day is the closest at about 231.100, while the 100-day is near 220.275. The 200-day (purple) is near 207.000 and not currently in play to my thinking. Stochastics (bottom subgraph) are pointing higher, with the “fast” line getting into overbought territory. Looking back over this chart, it does appear to me that this market has been comfortable being overbought, spending more time that way, rather than oversold. Volume today (mid graph) was strong, above 42,000 contracts, nearly matching the high levels seen a couple of weeks ago. In my experience, high volume on a directional move like this usually will result in more price strength, barring a technical reversal or other outside influence.
- Aggressive and well-margined futures traders may do well to consider long futures positions in Live Cattle. Perhaps trying to get long on a dip (traders don’t call it “Turnaround Tuesday” for no reason, after all) would be a good strategy. Perhaps near 239.000 or so, near the September 5th highs, or near the September 9th high of 237.550 would be good entry points. I’ll leave your entry up to you, as I don’t know your preferences for risk-tolerance. Protective stops should be near the September 10th low of 230.075. Volatility has been high in this market and you may find closer stops a bit frustrating. A simple trendline, drawn from the June-August highs, projects resistance above 250.000 to my eye, and perhaps to 254.000 by the end of this week. I’d be surprised to see a rally of that size this week, but that where the trendline hits the chart. 250.000 seems like a more reasonable target and is also a nice, big, fat round, even number that the markets tend to like.
- Less aggressive traders may do well to consider a long call option position. December options expire in 74 days. The Dec 250 Calls settled today at 3.200, or $1,280 out-of-pocket before your commissions/fees. I would risk ½ of the premium paid and look to exit the trade at 2x what you paid for it. From today’s close, that would be a potential risk of $640 or a potential gain of $1,280, before commissions/fees.
- To my mind, the bullish trend is still intact and higher prices are ahead.
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December Live Cattle (Weekly)
Since the December Live Cattle chart turned bullish, in the first week of October 2024 to my eye, we’ve not seen more than 2 bearish (red) weeks in a row. So far, that streak remains intact. Earlier this month this market did post 2 bearish (red) weeks in a row, but rallied last week to finish up 3.80 before the Cattle on Feed data was released Friday afternoon. This week has started off strong, following the bullish data, and we’re up 4.50 to start the week. You might notice, by looking at the weekly chart above, that the short-term weekly averages (5- and 10-week, blue and red, respectively) have held as solid support. It appears to me that each time prices have interacted with those averages, it has subsequently rebounded to new highs. The 10-week, especially, seems like it has been good support. Do you see the same thing? Price activity got very close to that average 2 weeks ago (the most recent red bar) but didn’t interact with it. Last week’s trade saw that average tested, as we posted a weekly low of 231.125 and that average was at 231.283, slightly above the weekly low.
Today’s close would market the 2nd highest weekly close for the contract, but it’s only Monday and we’ll have to wait to see it the gains hold. Stochastics (bottom subgraph) have turned back into overbought condition. It does seem to me that we’ve seen this market spend more time being overbought than oversold over the life of this chart. In fact, an oversold condition doesn’t even appear.
Given the fundamentals (less cattle here in the US, more people to feed) I would expect new contract highs to be in the future for this December contract.
Seasonally, the December contract does tend to trend higher until contract expiration, although that trend does appear choppy/higher to my eye. The Seasonal chart is below. Please note, my seasonal chart does not include today’s trade activity, as the service I use will update overnight. Blue is the currently traded contract, red is the 5-year pattern, green is the 15-year pattern and the yellow is the 30-year trend/pattern. Also, be aware that the actual trade can diverge from what the seasonals indicate. (see Feb-Mar-Apr, when the historical patterns turned lower, but this Dec contract barely blipped lower, or the July-Aug period which I would also consider divergence, as there was no aggressive sell-off in that time frame)
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Jefferson Fosse Walsh Trading
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