The Hightower Report

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Both June and August cattle saw the lowest closes since January, as bearish outside market forces and a weak trend in beef prices helped to pressure. June holds a $3.00 discount to the cash market so traders expect a continued downtrend in cash cattle in the weeks just ahead. Technical indicators are oversold and open interest continues to decline reaching the lowest level since mid-January. June cattle closed 85 points lower on the session Friday and also 85 lower for the week. The market traded slightly higher early in the session but weakness in the stock market and a turn up in the US dollar helped spark another round of long liquidation selling from speculators. As a result, the market pushed moderately lower on the session and weakness in the beef market last week added to the negative tone. This was the lowest close since January 7th. Boxed beef cutout values were up 26 cents at mid-session Friday and closed 21 cents higher at $174.79 which was down from $177.15 last week at this time. Cash traded at $112 last week, down $3.00 on the week and traders suspect a weak tone for cash cattle this week with the lower beef price trend. The estimated cattle slaughter came in at 129,000 head Friday and 6,000 head for Saturday. This brought the total for last week to 653,000 head, down from 657,000 the previous week and down from 678,000 a year ago. Beef production for the week was 493.5 million pounds which was down 0.8% from the previous week and down 2.9% from last year. The Commitments of Traders reports as of May 10th showed Non-Commercial traders were net long 84,437 contracts, a decrease of 6,168 for the week. The long liquidation selling trend is seen as a short-term negative force. Commodity Index traders held a net long position of 146,079 contracts, down 3,493 for the week. Export news remains strong with monthly exports reaching the highest since 2003 and cumulative export sales for 2011 have reached 361,000 metric tonnes, up 32.3% from last year’s pace.

TODAY’S GUIDANCE: Hopes that cash cattle might stabilize if Memorial Day buying from retailers is decent helped to support the turn up late last week but weather turned much colder across the central US and weekend demand may have come in slower than expected. Short-term demand news remains weak and cash cattle weakness might encourage the bears. Keep in mind, the USDA believes 2012 beef production will be down 4.3% from this year. Exports are impressive and imports in March were down 21% from last year. August cattle support is at 109.32, with 111.32 and 112.47 as resistance.

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 now holds a significant discount of June cattle to the cash market and it may take increasing bearish news to rationalize further downside for June cattle. The market closed sharply lower on the session yesterday and fund selling drove the market down to the lowest level since March 16th. Continued demand concerns and weakening beef prices helped to pressure and the weakness in the beef market has traders talking about lower cash cattle markets ahead. Talk of the hefty net long position of the speculator in a period of weak demand added to the selling pressures as trader see more commodity liquidation as a negative short-term force. Cash cattle trade emerged in Texas at $115.00, down $2.00 from last week. With the cash trade, June cattle are now trading at a stiff discount to the cash market and technical indicators are showing oversold readings. The weather outlook for the central US is showing some signs of better demand weather ahead but demand weather has been very poor for the last several weekends. The estimated cattle slaughter came in at 131,000 head yesterday. This brings the total for the week so far to 259,000 head, up from 223,000 last week at this time and up from 252,000 a year ago. Boxed beef cutout values were up 73 cents at mid-session yesterday and closed 37 cents higher at $182.16. This was down from $185.56 the prior week. With consumers in the central part of the US facing $4.00 plus gasoline prices and cold and mostly wet conditions, the barbeque season is off to a poor start; especially for higher-priced beef cuts such as steaks. This has helped keep the market in a long liquidation mode as the market adjusts to slower consumer demand.

TODAY’S GUIDANCE: While there is still no technical sign of a near-term low, June might find some short-term support due to big discount and firm tone to beef prices.

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!

If cash cattle can trade at $119.00 this week, the downside appears somewhat limited but traders remain concerned with a steady to higher pace of production expected ahead and the consumer impact on beef demand during a period of rising gasoline prices. The market closed lower on the session yesterday and back near the middle of the week’s range and well up from the session lows. The early rally was met with increased long liquidation selling ahead of the long weekend and ahead of the USDA report for release after the close today. June cattle traded moderately higher early in the day and to the highest level since April 8th but futures turned down into the mid-day. Uncertainty on cash cattle trade this week and a sluggish and choppy beef market of the past week may have helped spark profit-taking selling after the early peak. Talk that cash might trade $1.00 lower at $118.00 this week helped to pressure. Cash traded at $119.00 in Kansas late yesterday. There was also talk of the circulation of video released by animal-protection group showing animal cruelty at a Texas range and this was seen as another reason for selling. Historically, these types of occurrences have had little impact on demand. For today’s Cattle-on-Feed report after the close, traders see placements up near 4% from last year and marketings for the month of March near 3% higher, which would leave on-feed supply near 5% higher than last year. Drought conditions in Texas and Oklahoma may have boosted feedlot placements during March, and this is expected to continue for April. Slaughter came in at 126,000 head which was a little lower than expected. This brings the total for the week so far to 377,000 head, down from 383,000 last week at this time and down from 383,000 a year ago. Boxed beef cutout values were unchanged at mid-session yesterday and closed 6 cents lower at $188.89. This was down from $189.53 the prior week.

TODAY’S GUIDANCE: Consumer demand in the US and export demand this year have been better than expected. Another week of poor consumer demand weather is expected ahead before better temperatures are expected. We can’t rule out further weakness into the end of the month but the downside is limited unless cash markets come unglued. Outside market forces are strong for today. The outlook into the 4th quarter continues to look more positive from a supply perspective.

TODAY’S MARKET IDEAS: June cattle resistance is at 117.20 and 118.05 with support at 115.80 and 115.02. Look for choppy to slightly lower trade over the near-term. December cattle support is at 123.47 and a close above 124.60 may be needed to assume a resumption of the uptrend with 128.27 as next upside objective. Look for December to continue to gain on August.

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!

June cattle slipped lower overnight but saw a recovery to trade slightly higher late in the overnight session. Ideas that recent price increases in beef will drive up retail prices at the grocery store level to record highs and that consumer demand will slow helped to pressure the market in recent days. Traders see consumers reluctant to pay up for higher-priced steaks for the barbeque season ahead and this may slow beef movement some. In addition, a forecast for cold and wet weather in the northern and central parts of the country for this coming weekend and maybe next does not bode well for a jump start to the higher demand season. June cattle closed slightly lower on the session yesterday and moved to the lowest level since March 25th. This was a lower close for the 6th session in a row after the market posted a contract high on April 4th. The early weakness brought about talk that the market is a bit oversold. Ideas that hefty placements of cattle last fall will result in better short-term supply of market-ready cattle coming off of feedlots helped to pressure and traders look for weaker cash cattle trade this week. The estimated cattle slaughter came in at 128,000 head yesterday. This was down from 129,000 last week but up from 126,000 a year ago as this time. Boxed beef cutout values were down 62 cents at mid-session yesterday and closed 49 cents lower at $190.10. This was down from $191.68 the prior week. For the USDA supply/demand report on Friday, 2011 beef production was revised slightly higher (20 million pounds) but a decline in imports (60 million) and an increase in exports (50 million) more than offset the production increase. This caused per capita supply to drop to 58.3 pounds from 59.6 last year and 61.1 pounds in 2009.

TODAY’S GUIDANCE: Technical traders sometimes say that a market is a buy on the 7th day down from any significant high and that would be today. However, the short-term supply situation looks adequate and much of the supply “bullishness” of the market is being pushed down the road. Poor weather in the southern plains is pushing more cattle into feedlots and non-fed cattle slaughter is also higher than expected. Eventually, replacement cattle for feedlots will be very hard to find and beef production could be further reduced with high corn prices. While June and August cattle may have more negative short-term news to absorb, deferred contracts are likely to hold shallow support. Bigger placements last fall look to hit the market in the weeks ahead so traders see the short-term supply as a slightly negative force.

TODAY’S MARKET IDEAS: June cattle may see a recovery bounce given the discount to the cash and the short-term oversold condition but for now, don’t expect more than a bounce. Resistance for June cattle is at 118.17 and 118.82 with 116.15 as support.

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!

April cattle is now up as much as 9.3% from the March 16th lows to post new all-time highs. Open interest is also on the rise and funds have been active buyers to pull futures to a premium to the cash market. The surge in the cash market this week, however, leaves April in-line with the cash market and June at a discount. Consumer demand in the US has been less impacted by the higher price than traders have expected and Japanese demand for chilled, ready to eat (and/or stock in retail stores) beef and pork has also been stronger than anticipated. Traders will monitor the weekly export sales news this morning for further clues on demand. April cattle closed sharply higher on the session yesterday and rallied to a new all-time high for the spot contract for cattle with a high of 120.80. Cash cattle from the southern plains traded $6.00-$7.00 higher on the week to $120-$121 with some cattle from Kansas trading as high as $123.00. The market pushed sharply higher on the session early in the day but after a fairly sharp set-back, the market was back up near the highs into the mid-session. News that cash cattle was trading at $120 in Kansas and Texas early in the day helped to support the market with cash moving above most futures contracts and cash trading at a new all-time record high. Nebraska cash traded sharply higher late Tuesday and this helped support the market. The market found additional support into the mid-session on news of higher beef prices. A strong stock market late in the day was also seen as a positive demand factor. News from two of the largest meat companies in the US that Japan has been buying chilled meat since the earthquake helped to provide underlying support. Boxed beef cutout values were up $1.15 at mid-session yesterday and closed 69 cents higher at $188.18. This was up from $188.14 the prior week. The previous high was $189.05 on March 22nd. The estimated cattle slaughter came in at 124,000 head yesterday. This brings the total for the week so far to 376,000 head, up from 372,000 last week at this time and up from 375,000 a year ago.

TODAY’S GUIDANCE: While the market is in an overbought technical condition, open interest continues to push higher and traders do not see evidence that recent high prices will spark higher supply in the future. In fact, the opposite is true for now as cow and non-fed cattle slaughter has been running well above normal for the past year or more and replacement cattle will be difficult to find for feedlots for this spring. This may tighten feedlot supply going foreword. The market is in a steep uptrend and the bull market is likely to remain in tact. The next phase is likely to emerge from the lack of supply of replacement cattle for feedlots.

TODAY’S MARKET IDEAS: June cattle buying support is at 118.10 with 120.80 and 122.45 as next upside targets.