Comments Off on Live Cattle (What’s for Lunch?)

Live Cattle (What’s for Lunch?)

Live cattle futures are lower by 9% in 2013 putting August futures at $120. I have drawn a red horizontal line at the bottom of this chart and if this level holds it could prove to be solid support in this contract. I am  willing to wade into bullish trade with aggressive clients…getting long futures while simultaneously selling out of the money calls 1:1. It will take a volume spike and a move over the 9 day MA (light blue line) for confirmation.

A settlement above the 20 day MA (dark blue line) and I think you can add to the position. My first objective is the middle red line currently just above $125 or 4% above current trade.

5-15-13 LC.jpg

It appears the cash cattle market has topped out and will decline into July. Futures contracts are trading at a discount to the cash market. There is an argument of what comes first the chicken or the egg but price expectations really do influence the future plans of both buyers and sellers in the cattle market.

The biggest wildcard and potential risk that cattle cannot get out of their own way is consumer demand. Consumer beef demand during the first quarter declined 3.0% Y/Y. The weaker than expected consumer demand is contributing to limitation of price gains as seen by a sideways sloppy market. An earlier than normal Easter combined with much cooler and wetter conditions has deferred any significant demand improvement to date. Mother Nature simply is not cooperating, thereby limiting what should be the beginning of rising demand for beef in the summer “grilling season.” I do remain optimistic that the coming months will provide a significant boost in demand as temperatures rise. While the level of demand is likely to remain below year ago levels, the trend should be for demand to improve from current levels. From a supply viewpoint, cattle supplies are projected to decline as we proceed through the second quarter. This is elementary but ECON 101 tells me if we can see resurgence in demand and supplies “David Tepper” off this could lead to appreciation in cattle prices.

Filed in: Commodities

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