Monday, December 3, 2012
Long-liquidation selling by weak bulls is weighing on Live Cattle futures prices, as current anemic demand and high cattle weights is making it hard to justify the current premium in futures prices to the cash market. Longer-term prospects for beef prices are still bullish as traders expect tighter supplies of market-ready cattle into the 1st quarter of 2013.
The recent rally in Live Cattle futures prices has hit a road block, as high cattle weights and weak packer margins have made bulls cautious. Market ready cattle weights are running way above average, which could be adding to current ample inventories in a market struggling to find adequate demand for beef products at current prices. Packer profit margins are weak or non-existent which may spur lower level of purchases by processors in the short-term. Concerns of the U.S. falling off the so called "Fiscal Cliff" are also weighing on futures prices, as the prospects for higher taxes in 2013 may push many consumers in the direction of "cheaper " protein, such as chicken. Longer term prospects are brighter for cattle bulls, as average market ready cattle weights are expected to decline going into the winter months with tighter supplies expected in 2013, which is fallout from the devastating drought that forced a large reduction in herd sizes.
Looking at the daily chart for February Live Cattle, we notice what appeared to be a "bull flag" formation was discredited on Friday as prices posted a steep decline on very high trading volume. The 20-day moving average ("MA") has just crossed above the 200-day MA; this is considered a bullish technical indicator by many market technicians, though we would need to see a price rally soon or the technical signal may be viewed as a "bull trap". The 14-day RSI just touched overbought levels last week and have now turned neutral with a current reading of 55.79. The recent high of 132.925, made back on November 23rd looks to be near-term resistance for February Cattle. Support is found at the 200-day MA, currently near 130.100.
Mike Zarembski, Senior Commodity Analyst