What took 5 years to unfold has been erased by half in one year.
As “Dandy” Don Merideth used to sing:
Turn out the lights,the party’s over
they say that all good things must end
call it a night,the party’s over
and tomorrow we’ll start the same old thing again.
From the birth of the live cattle futures bull market in December 2009 to its end in October 2014, CME live cattle futures climbed $93.27/cwt on a spot futures basis. What took 5 years to unfold has been erased by half in one year. Today, spot Oct LC slightly exceed a 50% retracement of the entire move, touching $125.07 in early trading before staging another gasping rally.
The enormity of what’s occurred in the cattle market the past year and especially since July is as difficult to absorb as it is to fully understand let alone explain. Nonetheless, the financial carnage for the entire cattle industry is quickly spreading from the cattle feeder to the rancher. Cash yearling and calf prices are falling quickly as fed cattle prices dip way down into the $120s. Some northern packing plants have put out the word they are full until October 25 and the pressure and difficulty to get market-ready cattle dead in a timely fashion relentlessly continues.
No one wants to take deliveries in the first place but catching some and not being able to get them slaughtered is a double nightmare.
Now that Oct has completed a 50% retracement, the chart reader looks for the next level the market might probe, bringing some old gaps and a chart top formation measurement into focus from $123.90-124.32. But the cash market is driving the bus, not the futures, so it really is a function of when and where the cash market bottoms.
This week’s kill is expected to be larger than earlier thought, in the 568k-574k range, even to slightly below last week but still putting 3 consecutive weeks of “big” kills together by today’s standards.
Boxes are struggling as is well known and buyers are content waiting and watching prices fall rather than stepping too soon.
The elusive and unanswerable key question is where is value? From a big picture perspective, choice boxes near $200 and cash cattle in the low $120s would certainly appear to be value, yet the closer we get, the more perilous making that call becomes.
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