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Strong Demand Propels Cattle Prices Higher

Friday, March 24, 2017

Today's Spotlight Market

The following are pre-report estimates for this afternoon's USDA Cattle on Feed report:

On Feed (March1): 100% of last year

Placements (February): 99% of last year

Marketings (February): 103.5% of last year


Fundamentals

After making multi-year lows back in October, Live Cattle futures prices have staged an impressive rally, with the June futures up over $20 per hundredweight as high meat packer profit margins are contributing to strong cash market sales. Wednesday's auction at the Fed Cattle exchange showed buyers paying an average price of $133 per hundredweight which is a nearly $19 per hundredweight premium to the June futures. This unusually wide cash market premium may lend further support to the futures unless we start to see a steep drop in cash Cattle prices in the coming weeks. An investigation of Brazilian meat packing firms regarding potential bribery of food safety inspectors has caused the nation's beef exports to tumble, as several nations, including China, have temporally banned beef imports from Brazil. While the investigation is in its early stages, some traders believe that the U.S. may see increased demand for beef should the Brazilian ban continue for any length of time. A report out on Wednesday showed U.S. frozen beef stocks fell by 0.8% of last year's totals to 502.429 million pounds. The Cold Storage report was generally viewed as bullish, as most analysts were expecting a small increase in storage. This added another bullish fundamental factor to the Live Cattle futures market.

Technical Notes

Looking at the daily chart for June Live Cattle futures, we notice that prices staged a minor price reversal on Thursday after making a new contract high of 114.200 earlier in the session. Some of Thursday's selling stems from profit-taking by weak longs following Wednesday's strong up move as well as positon squaring ahead of the this afternoon's Cattle on Feed report scheduled for 2 pm Central time. We should also note that the 14-day RSI has moved into overbought territory with a current reading of 73.26. Thursday's high at 114.200 looks to be the new resistance level for the June futures, with chart support seen at the January 19th high at 109.625.

Mike Zarembski, Senior Commodity Analyst