Little "Moovement" in Cattle Prices Ahead of USDA Report
Fundamentals
Commodity bears are eating quite a bit of beef lately, as Live Cattle futures prices continue to move lower. Weak economic conditions have really put a damper on consumer demand, as retail buyers look towards cheaper alternatives for their protein needs. Like most commodities, Cattle futures peaked back in late June, when concerns about spiraling inflation were all the rage. The high cost of feed earlier in the year and tight credit conditions have traders looking for lower cattle inventories when the USDA releases its semi-annual Cattle Inventory report at 2 pm Chicago time on Friday. Current estimates are for Cattle inventories to fall to between 99 and 99.5 percent of last year's totals. Future "steaks on the hoof" are also expected to fall with the annual calf crop, expected to come in at just 99.2% of last year's totals. Despite expectations for lower supplies in the future, Cattle prices refuse to rally, as meat packers are lowering their bids because current slaughter rates are thought to be more than ample to meet current demand from retailers. After the USDA report is digested, traders will turn their focus to spread trading, as speculators begin to roll out of the February contract ahead of first notice day on February 9th. It appears that large and small speculative traders are having a difference of opinion regarding the direction of Cattle futures prices, according to the most recent Commitment of Traders (COT) report. As of January 20th, large non-commercial traders were holding a net long position of 10,092 contracts, while non-reportable positions (small speculators) totaled a net-short 19,966 contracts. With speculative opinions mixed, it may be the activity of commercial traders that decides which direction Cattle prices will "moove" next.
Technicals
Looking at the daily chart for April Cattle, we notice the major downtrend is well entrenched since prices peaked in June. Volume has started to wane recently, as it appears that daily price volatility has declined during the past week. The 14-day RSI remains weak, but above oversold levels with a current reading of 36.43. Recent price activity has formed the appearance of a potential descending triangle, which is normally considered a continuation pattern of the major trend. The contract lows of 82.40 should act as decent support in the April contract, with the next resistance point at the 20-day moving average currently at 86.95.
Mike Zarembski, Senior Commodity Analyst
