Most cattle traders, even bears, are stunned by the over $10 decline since last Friday’s opening in Feb LC. It’s been an ugly, gut-shot kind of a sell-off that has quickly taken the market back within spitting distance of the December lows.
Another Technical Test
In fact, Feb is flirting with the spot low from Dec of $155.95, a low which had checked the $154.50 spot low made in September. A weekly close below these key spot chart points would be construed as bearish technically and the next area of support $151.75. On the other hand, if the low holds, the spreads turn and the market leaves a tail, a major double bottom is possible.
All News Threads Seem to Lead to Deflation
Analysts keep reaching for reasons to explain the plunge in values and disconnect from physical prices and the most popular explanations are not quantifiable. But perceptions and beliefs rather than facts can rule the day in the age of big money fund traders, Twitter and CNBC.
Deflationary influences on most commodity prices led by the lowest crude oil prices since 2009 is the most popular news thread. Throw in the strong U.S. dollar that many say is bound to keep 2015 exports in check. In fact it’s hard to find a commodity, save gold and coffee, that hasn’t sold off this week and equities haven’t been immune either.
Can a Bearish Fundamental Case Be Made?
Some also want to take aim directly at the cattle complex with bearish rhetoric relating to warnings of waning beef demand which cannot be substantiated as of yet and increasing competing meat supplies for 2015 which can. Check out the New York Times Food section today, prime rib is making a posh comeback.http://nyti.ms/14WErqJ
Regardless of what “handle” fed cattle prices have, $145 to $170 the underlying supply fundamentals for cattle and beef for 2015 are still generally positive. Imports from Australia are flowing straight to the American fast food industry, making up for a great deal of the domestic short fall in grinding beef and keeping a lid on domestic 90s around historic highs of $300. A slowdown in Aussie exports in 2015 would have a significant positive impact on prices in the U.S. that would be felt in all sectors.
If +$170 Is Too High, What’s Too Cheap?
A favorite of bears in 2014 was the mantra “these prices cannot be sustained”. It could be argued that a major long term down trend cannot be sustained in live cattle futures, given fundamentals and an already $17 break.
Lots of traders still agree +$170 is too high. Perhaps the market is on a mission to rediscover “value” or as traders say, how cheap is too cheap?
In the Midst of the Storm…Packers Bid $164-164.50
With black margins for next week’s slaughter highly likely, packers are out attempting to cheapen up their inventory holdings as they see “value” thus putting a floor in the fed cash cattle market for this week.
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Disclaimer: The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.
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