May 25, 2016
The higher close Wednesday in live cattle was a shallow victory, but a victory nonetheless.
June gapped up slightly this morning and closed above its open. It did this in the most minimal way possible, so I don’t anticipate it to hold a lot of water. However, it did create a “morning star” pattern on the candlestick chart, suggesting a possible turnaround, and some of the feeder cattle contracts posted much healthier-looking ones.
Superior's first internet sale of fat cattle today appeared to bring around $125.00 for most inventory.
Also, today was about as lackluster a trading session I’ve seen in months. It is an interesting environment to scan.
Aspects of demand improvement are being shoved to the wayside by the increase in inventory. With the beef promotions I’ve seen, I perceive that supply is not as burdensome as others do. The old adage of “sell it or smell it” doesn’t appear to have any bearing today with stored stocks declining and weights being trimmed.
Nothing appears to have changed. The three days' close are all within 15 cents of one another in the June contract.
The only thing that I can think of is that the supply issue is well known and has been being traded for some time now. None of this matters until probably closer to first notice day when traders will really begin to work on the basis.
In the feeder cattle contracts, September, October and November all created “morning star” chart patterns. While most will view this as grasping at straws, it’s the only thing barring just blatantly saying a bottom is in with no justification.
It may still take several weeks to confirm a bottom, if this is it. There is little to discuss as nothing changed with today’s price action.
I have no way to combat the pessimistic views of the environment. My opinion only is that the movement in April was a queue taken from feed yards to move inventory and not let it back up. This did wonders in the fat cattle market and is anticipated to benefit producers. I continue to think how much worse it would have been, knowing that expansion is increasing inventory, and backgrounders had held back placing them.
A key to resolving the low price is demand. Promotions from major grocer and restaurants are anticipated to have an impact.
I perceive the pessimistic environment is ripe for packers obtaining inventory without moving the market against themselves.
Define "morning star"
Investopedia says a morning star chart formation is a bullish candlestick chart pattern with three candles that suggest a market bottom and have these three characteristics:
1. The first bar is a large red candlestick, or bear candlestick, in a defined downtrend.
2. The second bar is a small-bodied candle (either bull or bear) that closes below the first red bar.
3. The third candlestick is a large bull candle that opens above the middle candle and closes near the center of the first candlestick bar's body.
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.
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