No Bull! Live Cattle Futures ?Mooove? To Record Highs!
Today’s Spotlight Market
Large speculators have led the bullish charge in Live Cattle futures prices according to the most recent Commitment of Traders report. For the week ending January 14th, non-commercial traders (normally large speculators and commodity funds) were holding a net-long position of 134,577 contracts, which was up 12,631 contracts for the week. This extreme long position is in contrast to the net short position being held by non-reportable traders (small speculators) of 25,899 contracts, as well as commercial traders of 108,678 contracts. The commercial net-short position is due to hedging by producers eager to lock-in historic prices for Cattle. The non-reportable short position appears to be traders trying to ?pick a top? in this bull market. However, this position may add further fuel to the fire, as these small traders are forced to exit their short positions on further price gains.? Fewer willing sellers can be found currently, as Cattle supplies remain tight and futures prices are trading at a discount to the cash market.??? ?
Fundamentals
Speculators have stampeded to the long side of the Live Cattle futures market as a ?perfect storm? of tight supplies of market-ready cattle combined with harsh winter weather, which makes transport to market challenging, has ignited another historic commodity price move. Since the beginning of the year, the lead month February futures have rallied over $7 per-hundredweight as cash Cattle prices continue to make new-record highs.
The U.S. Cattle herd has been declining for the past several years and has fallen to the lowest levels since the early 1950?s according to the USDA. Ironically, record high prices for market-ready Cattle have not curtailed meat packer demand, as wholesale beef prices have kept pace with the rise in Cattle prices and kept packer profit-margins attractive. Harsh winter weather in the Midwest and Central Plains has kept livestock held on feedlots from putting on weight, which has kept lower weight Cattle from being sent to market. One does have to wonder when retail consumers will finally tire of paying ever higher prices for beef and begin to switch their protein consumption to ?cheaper? competitors such as pork or chicken.
We have already seen some signs that U.S. per capita beef consumption has been falling somewhat the past couple of years, but not enough to help to cap retail prices. The old trading adage that ?high prices are the cure for high prices? translating into higher production and/or lower demand for a commodity will normally occur once prices reach extreme levels. However, in the case of the current bull market for Live Cattle futures, it may take a bit longer for production to increase significantly in order to slow the price rise, but we may see the demand side of the price equation play a more significant role in finally extinguishing this historic bull market.?????? ?
Technical Notes? -? View Today’s Chart
Looking at the weekly continuation chart for Live Cattle futures (symbols LC), we notice that after spending nearly 24 years trading in a relatively narrow 35-cent per pound price range (approximately 50 cents to 85 cents per pound from 1978 to 2002), Live Cattle prices have been in a gradual uptrend since 2002, with prices now more than doubling in the past 12 years. The up-move in prices is becoming ?parabolic? if we measure starting at the most recent low back in June of 2013.
The weekly RSI has also moved well into overbought levels, but it is still too early to call a top in the market, especially given the net-short position being held by small speculators. Given that prices are at record levels, it is difficult to forecast a resistance level, although we may see ?round? number prices such as 145.000 and 150.000 act as ?psychological? resistance points. Support is found at 134.500.?????
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