Will Cattle Prices Mooove to New Highs in 2012?
Friday, November 18, 2011
The recent sell-off in deferred Cattle futures may set-up a potential buying opportunity for longer-term traders. Some traders who are considering establishing a long position in 2012 Live Cattle futures may possibly wish to explore buying February Live Cattle futures on price corrections, with the anticipation of a move above the contract high of 127.000. A close below the recent low of 120.300 would be a signal that the up-move may be in jeopardy, as that would negate the trend of higher lows seen in the market since May of this year.
Fundamentals
The bull market in Live Cattle futures has been taking a bit of a breather lately, but the potential for a "mooove" to new all-time highs in 2012 is still alive and well. Cash Cattle prices rose to a record high last week, trading between $125 and $127 per hundredweight in Nebraska, as beef export demand from the US remains robust. In addition, the severe drought that plagued the southern plains forced a large number of Cattle into feedlots earlier than usual, leaving market-ready Cattle inventories tight going into 2012. In the near-term, the tone of the market is more undecided, as Cattle that were placed in feedlots earlier this year are now ready to come to market, which should increase beef supplies heading into December. In addition, meatpacker profit margins are currently negative, despite high beef prices and the potential for higher supplies of Cattle coming to market in the near-term, which may lessen the price that packers may be willing to pay for Cattle in the coming weeks. This afternoon, many traders will be anticipating the release of the monthly USDA Cattle on Feed report, which is expected to show Cattle on feed as of November 1st were up 4% from year ago levels. Cattle marketed in October are expected to have risen by nearly 1.5% from the previous year. However, the number of new Cattle placed in feedlots is expected to have fallen by nearly 1% in October. If true, this should contribute to tighter supplies of Cattle in 2012.
Technical Notes
Looking at the daily chart for February Live Cattle, we notice the string of higher lows and lower highs starting in mid-May of this year. This consolidation pattern has yet to resolve itself, and prices remain towards the upper middle of the recent price range. Prices are currently above both the 20 and 200-day moving averages, which gives some bias to the bulls. The 14-day RSI is neutral, with a current reading of 52.31. Support is seen at the recent low of 120.300 made back on November 1st, with resistance found at the November 4th high of 126.500.
Mike Zarembski, Senior Commodity Analyst
