Bears Eating Beef
It was a bad week to be “bullish” on Live Cattle futures, as the most active December contract ended the week at 3-month lows. The prospect of weaker beef demand is mostly to blame for the sell-off, with South Korea placing a temporary block on U.S. imports due to the discovery of spinal material in a shipment. In addition, the recent recall of ground beef due to e-coli contamination is hardly encouraging consumers to eat more beef products. Ample supplies of pork and poultry are also weighing on Cattle prices, with consumers turning to cheaper competitors at the dinner table. Now that Corn prices have started to come down from lofty levels, producers may be encouraged to keep young Cattle on feedlots longer, which would result in heavier weights once they come to market.
Looking at the daily chart for December Cattle, we notice Friday’s sharp sell-off sent prices below the 100-day moving average to end the week. However, the 14-day RSI has reached moderately oversold levels, with a reading of 23.22. Friday’s release of the weekly Commitment of Traders report shows large speculators have started to liquidate their long position in Cattle, with the net-long position by large non-commercial traders falling by 3,336 contracts as of October 2nd. However, the net-long position is likely even smaller, given the sharp sell-off we saw last week. 95.25 is seen as the next support point for December Cattle, with resistance found at the 100-day moving average at 97.82. December Live Cattle closed Friday at 96.12, down 1.72.
