December live cattle is reaching for the $103.82 level this morning. With the expanded limits, there is potential this area of importance could be reached or exceeded today.
Two things will be transpiring at the $103.82 level.
One is that for the first time since inception of the contract, traders have been able to exceed a previous high from a contract low. Many of the previous contract lows have been exceeded, but not the top from which the new contract low was made.
Second, it will solidify the contracting wave count of the fifth wave. If the $103.82 level is exceeded, it won't necessarily suggest to be a buyer, but that changes should be made to your approach to marketing.
Whether traders jostle prices around if that area is breached, or trade straight through it, the upside target will be the August high per respective contract month you are following.
The past two weeks of lower trading has made my previous comments appear foolish attempting to outguess the packer. As it appears those comments may now begin to show merit, I will be much more pleased with having been early on my analysis than wrong all together.
There is a great deal of the row left to hoe. Supply news yesterday should have emboldened bears this morning. Coupled with the on feed and cold storage reports due out this afternoon, one may begin to sway some credibility towards intrinsic value being sought with prices higher and supply still quoted as burdensome.
The feeder cattle rally has moved the May $120.00 call out of range now. Offered at $5.00 is more than I would like to pay.
Feeders have been anticipated to do not much more than follow fats. Interestingly enough though, it is seeming that heavier feeder steers are waning in numbers: Plenty of calves and lighter feeders, but fewer and fewer of the ones that could perform the fastest. So, feeders may have some additional push from this along with the pull from fats.
The same contracting pattern of the fats is viewable on the feeders. None of the feeder contracts visible have exceeded a previous high since inception. A trade above $120.45 January will break this trend.
Also, it has more than two years since a futures contract has been conceived at a premium. When August of 2017 came on the board, it is the first that has done so in more than two years. Change has been slow in coming, but so has the addressing of supply. Running still at a 25% heifer slaughter rate, this is an excessive rate, burdensome to price, and most likely not sustainable for much longer. If it is sustained for much longer, the current anticipated rally could fall to the wayside as just another correction in a bear market.
In my opinion only, no price would enable the consumer enough to increase consumption to the level of current protein production. I believe this is recognized by most after the USDA's production report yesterday. As easy as this is to say, and difficult to apply, but slowing production is the only way to allow the consumer time to work through the glut of protein.
An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. Past performance is not necessarily indicative of future results.