Funds and bulls were on a roll yesterday as they added over 7,000 contracts of open interest to the live cattle market.
Follow-through today, and anticipation of a higher cash trade via the fed cattle exchange (FCE) this morning, leads me to perceive the wave 2 nearing its end.
Just know there are many more unanswered questions than answerable ones.
There may be someone out there that knows why the disparity is there, and potentially how it will be resolved. For me, though, I don't have those answers and the best I know to do is nothing.
Hedging cattle at the severity of the current discount increases risk of loss and decreases potential for profitability in feeding cattle.
Again, it is not that today cash and or futures won't trade lower. It is not that I discount the number of cattle coming. It is that the current demand was not anticipated, is increasing, and is anticipated to grow as weather permits more outside activities.
This may not be enough to absorb the "wall" of cattle many are describing. However, to suggest the consumer is going to all the sudden slow consumption at the same time the wall of cattle gets here is really excellent prognosticating by some.
My analysis suggests demand is a trending facet. As it appears to be in its fledgling stages, I anticipate beef demand to continue to grow. Especially if cattle prices drift lower this summer.
As for feeder cattle, watch for a separation between spring months and fall months. All of the August and out months have exceeded previous highs from the February low. The spring months continue to flirt with this high, but are having a slightly more difficult time exceeding it. The wall of fat cattle seen this August through October are feeder cattle now. Does anyone see a wall of feeder cattle to be placed? Is the wall bigger than previous walls? More questions than answers as always.
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