Could this be the start of a real "Bull" market?
The bearish stampede of Cattle prices may be coming to an end, as last Friday's USDA Cattle on Feed report (COF) shows indications that future supplies may be curtailed. Cattle placements in October were down 11% from last year's totals, as tight credit conditions limited the number of Cattle placed on feedlots. This was viewed by many analysts and traders as the most bullish figure in the report and should lend some support to back month futures, which have been hard hit the past several sessions. Cattle on feed for November came in at 93.0%, almost 1% below average pre-report estimates. Beef prices have been hard hit recently, with the USDA reporting that choice grade boxed beef cutout prices fell by $1.69 per hundredweight on Friday, as fears of continued economic weakness have curtailed retail demand, with consumers switching to cheaper proteins such as chicken or pork. Speculators have a mixed option on the direction of Cattle futures prices, with small speculative accounts holding a net-short position of 24,954 contracts as of November 18th according to the Commitment of Traders (COT) report. Large non-commercial traders were net-long 8,471 contracts, but they have cut their net-long position by 5,994 contracts as of the 18th. The COT might lead some to the belief that a short-covering rally is due, especially as small speculators exit their short positions on any correction. However, like many other commodity markets, Cattle futures have been under the influence of the equity markets, and further weakness in stocks may pull Cattle futures lower, despite the bullish fundamentals highlighted in the COF report.
Looking at the daily chart for February Live Cattle, we notice the market trying to form a near-term bottom a day before the Cattle on Feed report was released. Volume has been heavy recently, with liquidation selling and minor rolling of December positions into February accounting for the volume spike. Despite the recent recovery, prices still remain well below both the 20 and 100-day moving averages, as a rally above 91.25 would be needed to trigger additional short-term momentum buying. The 14-day RSI has recovered from oversold levels, but is still hovering just below neutral territory with a current reading of 38.93. The recent low of 83.85 is seen as support for Feb. cattle, with resistance at the 20-day moving average of 91.25.
