February 9, 2023
Thanks to higher priced grain and parched pasture conditions, cattle producers were forced to liquidate the herd at a rapid pace in 2022. Because of this liquidation, the reality of tighter beef and cattle supplies will keep both live cattle and feeder cattle futures fundamentally supported at historic loftier price levels for the remainder of 2023.
However, both markets cannot continue to go straight up for weeks at a time. This market is technically overbought, and due for a simple price correction in the coming weeks.
After the USDA Cattle Inventory report, feeder cattle futures posted a strong rally, supported by the tight supply picture and decreased beef cow herd. The March contract rallied nearly $10 from its January low, but the momentum may be starting to slip.
The fundamentals are still very supportive in the cattle market overall, but price action may have some technical triggers that could bring some price correction.
On Tuesday this week, March feeders failed at the Dec high trading to $188.575 before reversing into the close. The price action saw further weakness on Wednesday slipping another 0.750 into the close today, giving the market some follow-through selling pressure.
This could set up the possibility of some additional price correction and a possible test of lower levels. The pullback may be healthy for longer term price support, but in the short term, the Feeder market may look to move some money to the sidelines.
The price action in the cattle market was weaker overall after the turn lower on the close Tuesday. The market is fundamentally supported, but the momentum at this point seems to have slowed.
The development of cash trade could wake the market back up, but that news is still developing this week. The countryside cash trade was quiet again on Wednesday and bids are undefined, but asking prices remain firm at $161-162 in the south. Cash trade will most likely build as the market moves through the end of the week.
Both the April live cattle futures, and June live cattle futures have a seasonal tendency to see a price pull back starting around February 15.
The price pull back or correction tends to last for a month or so. That being said, I do not feel that this is “the high” for cattle futures, yet the market is overbought and a price correction would be healthy for the bigger picture.
Seasonally, the February 15 time frame makes sense for a price pull back as the restaurant demand for steaks for Valentine's Day meals has been met, as has demand for beef at the grocery store been met due to Super Bowl football parties.
The trend in the cattle market is higher overall, but the price action Tuesday and Wednesday brings some caution. The market is overbought and could be due for some pullback on the technical side due to loss of momentum and the strong money flow over the past couple of weeks.
Again, due to the friendly underlying fundamentals of tight supply, I still like the upside longer term, but the cattle market may be due for a healthy price correction.
Reach Naomi Blohm at 800-334-9779, on Twitter: @naomiblohm, and at [email protected].
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The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
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