Nearby cattle futures have been trading in a $4 sideways trading range for three astonishing months. The battle between bullish and bearish fundamental news continues to keep prices firm overall. Cash markets have also traded steady, trading between $123 and $125 over in recent weeks. Yet a sideways trading range cannot last forever, and this market seems ready to finally break out of that range. Which way price finally breaks may revolve around the next government report.
1. The Cattle on Feed Report is Friday.
The report on Friday may be the catalyst for new price direction. Heading into Friday’s report, trade is expecting the on feed number to come in near 102.2. The placement number is expected to be near 103.2. Finally the marketed number is pegged at 105.2. If there are any bullish or bearish surprises, the market will be ready to respond.
2. Here are the bullish arguments.
The demand for beef remains strong. In the recent Phase 1 trade deal with China, China has agreed to ease restrictions on U.S. beef, which should open the door to U.S. beef imports. Even without the friendly trade news from China, U.S. beef exports have already been strong. If any business is to be gained from China, the additional export demand would definitely be supportive to prices. With the devastating drought in Australia, some expect that the United States may gain some of that export market share due to their smaller herd. Finally, from a technical standpoint, open interest in futures trade has been rising, which may point as a sign to a technical breakout to the upside for prices.
3. Why the bears think prices should trade lower.
Yes, domestic and export demand for U.S. beef has been fabulous, but there will be plenty of supply coming down the pipeline to meet that demand. U.S. beef production between Q1 and Q2 is expected to have the largest increase since 2008. Add to it the reality that because of the drought in Australia, there has been liquidation of the Australian breeding herd, which is keeping short term global supplies elevated. Lastly, the funds have a hefty net long position. If there is any bearish news that emerges, they may be tempted to liquidate positions into month end. Be mindful, the longer a market is trapped in a sideways price trading range, the bigger the price breakout move will be (depending on the bullish or bearish fundamental that emerges which finally tips the scale). At this time, we do not know which way the price breakout will be, but now you are prepared for either scenario.
Reach Naomi Blohm: 800-334-9779 and firstname.lastname@example.org
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