By Cassie Fish, http://cassandrafish.com
Cash cattle prices topped this year at $144.60 average, the week ended May 1, after a blistering one-month long rally which blew through the 2016 cash high. Fast forward to the Q3 low made in September at $104.66, and that’s a $40 move.
Now that the Q4 cash market rally is on the fast track, $12 off the lows so far, where is this market headed?
In the 5-area cash chart above, there is resistance from $117 to $121 just above last week’s average of $117. Given today’s one FCE on-line auction trade on some green heifers at $120, it appears a layup cash will trade above this resistance area this week.
A .618 retracement of the $40 move in the cash takes the market back to $129, which corresponds with the next major overhead cash resistance at $130, which is where cash traded in mid-June, right before the downtrend in cash prices began. The 5-year average for November is also in the low $130s.
Given that timing is everything, and the desire is great to run plants hard in the coming three weeks (just as the beef cutout seasonally rallies) paying up for cattle won’t be as painful for packers as not having the cattle to kill would be. Packer competition for seasonally tighter market-ready fed cattle supplies is expected to be significant. Beef packer margins may tighten in November, which is seasonal, but will likely remain positive.
New Futures Highs
New life-of-contract highs have been made today in every single live cattle and feeder cattle futures contract. Funds keep buying and cattle feeders keep hedging as open interest builds daily.
But as the cash market rally accelerates in November, cash may well gain on futures, possibly signally all the good news is in the market for now- at some point. This is not a stretch considering Dec LC is almost $10 above last week’s cash average, quite a feat since cash itself was up $6 last week. Futures market action relative to the cash trade will likely be a source of important trading insight during what is likely to prove to be a dramatic and pivotal month.