Today’s Spotlight Market
Those traders who follow the seasonal tendencies will note the rather large discount that winter month Live Cattle futures are trading at when compared to the cash market. The February 2017 futures were trading at 100.550 as of this writing vs. cash prices near 102.000. Normally the Feb contract is at a nearly 10.000 premium to cash at this time of year. It may be that Futures price discount top cash that is keeping large speculative accounts net-long Live Cattle despite the trend being solidly in the bear camp. The most recent Commitment of Traders report shows non-commercial traders holding a net-long long position in Live Cattle totaling just over 32,250 contracts as of the reporting period ending October 4. Ironically, commercial traders are holding a net-short position and have added to the short position as prices continue to decline.
Fundamentals
For those traders who remember trading Pork Belly Futures, and the rather wild price swings that would occur, the Live Cattle futures market has recently started to display that type of price volatility as prices tumble to multi-year lows. Among the fundamental reasons cited for the price decline are higher beef production expected going into the 4th quarter, lackluster retail demand and competition from cheaper protein sources such as pork and chicken. While lower Cattle prices are starting to cause pain for producers, end users such as meat packers are enjoying solid profit margins which is encouraging increases in slaughter rates and adding to already ample supplies of wholesale beef. Not even reports that China was lifting a ban of U.S. Beef imports could sustain more than a brief short-covering rally when it was announced last month.? Traders will get a fresh prospective as to the size of the cattle herd on feedlots when the USDA releases the monthly Cattle on Feed (COT) report on October 21. The September COT report was generally viewed as bearish by traders with total head of Cattle on feedlots up 1.63% from year ago totals and Cattle placed on Feedlots over 15% above year ago totals.? ?
Technical Notes? -? View Today’s Chart
Looking at the daily chart for February 2017 Live Cattle, we see the market has traded in a rather classic bear market pattern with price making a series of lower highs and lower lows for the past 12 months. Given this negative price trend, it should come as little surprise that prices are pulling away from both the 20 and 100-day moving averages to the downside and the 14-day RSI is weak with a current reading of 34.50. While the RSI is currently just above oversold levels, we do note that a bullish divergence could be forming as the RSI has failed to make a recent low despite prices trading near new contract lows. Contract lows of 99.825 are seen as psychological support for the February contract with resistance seen near the recent major high made on September 22 high at 109.125.
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