Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
The market is seeing some increased volatility as futures absorbed a long liquidation sell-off yesterday only to recover a good portion of the break overnight. Perhaps the steady trade in the cash market was seen as a positive to some traders and a negative to others. In order to see further gains, however, the market will need to see consumer demand remain steady on an uptrending beef market. This may be difficult with lower poultry prices, but poultry supply is also on the decline. The market finally succumbed to outside market forces yesterday with a sharp break. April cattle closed more than 200 lower and back down near $121 as cash cattle in Texas traded at 121.00 this week, which was steady/firm against expectations but may have been disappointing against expectations. The market traded mostly lower on the session early with talk of the overbought condition of the market after the surge last week and follow-through up Monday helped to pressure. The sharp break in the stock market helped to pressure but the strong close in the stock market yesterday plus a little less fear of Euro debt problems helped to support solid gains in overnight action, with October cattle already up as high as 122.40 in overnight action. Traders indicated that much of the selling yesterday was profit-taking after the run to an all-time high for nearby futures. The estimated cattle slaughter came in at 131,000 head yesterday. This brings the total for the week so far to 260,000 head, up from 259,000 last week at this time and up from 256,000 a year ago. Boxed beef cutout values were up 31 cents at mid-session yesterday and closed 7 cents lower at $183.74. This was up from $183.05 the prior week.
TODAY’S GUIDANCE: Just when it looked like the cattle market had divorced itself from the global economic fears, the sharp break yesterday could cause some of the bulls to reconsider the short-term demand for the market for beef. The supply situation is tight now and hefty placements of cattle for the summer should help ease some of the tightness into the early 2012. Meanwhile, the market still sees the possibility of extreme tightness in supply of available cattle to move onto feedlots next year and also further tightening of supply “if” producers begin to hold back females.
TODAY’S MARKET IDEAS: December cattle short-term support is at 121.65 and 120.42, with next key resistance at 125.57. A continuation of the uptrend leaves 129.47 as a possible longer-term target. Cash is strong and packers will be pushing beef prices up this week. Position traders might consider buying June on a set-back.
Cattle: Outside Markets Helping to Recover Yesterday’s Weakness
by Terry Roggensack on January 31, 2012
Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
It may take some help from the export market and increased interest from fund traders but cattle appears to have the supply fundamentals to continue to attract speculative interest for the coming season. The inventory report showed the smallest herd in 60 years. The feeder supply outside of feedlots came in down 4% from last year. Total cattle and calves as of January 1st came in at 90.769 million head, which was 97.9% of last year. The calf crop was 35.313 million head, 98.9% of last year. Traders see tightening supply into the spring as a potential bullish force. Short-term, however, it will be important to see the beef demand show some improvement. Boxed beef cutout values were down 92 cents at mid-session yesterday and closed $1.25 lower at $182.88. This was down from $183.52 the prior week and is the lowest beef market since January 20th. April cattle closed moderately lower on the session yesterday and stayed in a fairly tight range for the last several hours of trade after volatile trade early in the day. The market pushed sharply lower on the session early to push down to the lowest level since January 19th. The market managed a 50 point bounce off of the early lows into the mid-session as the selling slowed. Cash cattle traded $2.00 lower on the week last week to $124.00 and the cattle inventory report confirmed the lowest herd in 60 years, but this news was not a surprise to traders. The surge up in the US dollar and a sharp break in the stock market were seen as bearish forces for the early weakness. The estimated cattle slaughter came in at 114,000 head yesterday, which was right as expected but down from 123,000 last week and down from 121,000 a year ago as this time. Trend-following fund traders (non-commercial less index funds) were net long just 50,907 contracts as of January 24th, and this is down from 116,518 contracts in September of 2010. Index fund are net long near 117,000 contracts and have been net long as much as 156,752 contracts.
TODAY’S GUIDANCE: The more positive tilt to outside markets appears to be helping cattle quickly recover from yesterday’s weakness. However, beef prices are still struggling to move to a higher level and feedlot operating margins are deep in the red. The short-term cash fundamentals look a bit sloppy while the longer-term outlook is for sharply higher prices into the spring.
TODAY’S MARKET IDEAS: With the short-term overbought condition, traders might consider buying 2-3 calls and selling 1 futures for the April or June contracts. On a 150 point break, lift the futures and hold the calls for a spring rally. April cattle may show some technical support near 127.75 and a move through resistance at 128.72 would suggest a swing up to 130.62.