CATTLE COMMENTS
On this Friday the USDA will release the May “Cattle on Feed Report” at 11:00AM not 2:00PM.
Early guesses are: Ranges of guesses Averages
- Cattle On Feed as of May 1 98.1-102.3 100.8
- Placements in April 103.1-112.7 106.8
- Marketings in April 101-102.7 101.8
The market chatter I am hearing regarding Cattle and Feeder Cattle suggests a negative tone coming sometime in the third quarter of this year. It has changed from earlier thoughts that the beef markets would turn bearish during the second quarter. It appears that perhaps the packers fooled everyone and stepped in and aggressively bought as much as six weeks out front. This supposed unanticipated packer buying may have been the energy that saw the beef markets top out in early May. After hitting their peaks the August Cattle dropped $10.72 from the high made on May 4 to the low on May 16, and the August Feeder Cattle dropped $18.85 cents from May 4 to May 11. So what from here? For that I want to look at the LAWG 647 proprietary model.
The sizable break in the beef markets was no surprise according the LAWG model. Both August Cattle and Feeder Cattle had reached points of being significantly overbought with August Cattle reaching negative equivalency. According to LAWG in order for the Cattle and Feeder Cattle markets to go higher they both first needed to experience a sizable downside correction. Just how bullish is the LAWG MODEL when it comes to Cattle and Feeder Cattle.
In order to gauge how bullish or bearish a market may be the LAWG Model compares where the market is presently trading to where the market needs to go on a Friday close in order to reverse an underlying trend. According to the LAWG Model not only are Cattle and Feeder Cattle in an uptrend they are in a serious longer term uptrend. Below you will see what levels are needed over the next three Friday closes to reverse the trends to bearish for the August Cattle and August Feeder Cattle. As I write this the August Cattle are trading at $119.82, and August Feeder Cattle are trading at $148.45.
August Cattle May 26 June 2 June 9
Turns bearish on a $105.45 $107.80 $106.75
close at or below
August Feeder Cattle
Turns bearish on a $131.05 $135.27 $133.75
close at or below
Armed with this information what is the game plan you might ask? First of all as a general rule I do not trade into USDA reports so I have no interest in doing anything this week. Secondly, it is my opinion that both beef markets need a further correction before the LAWG suggests a long position. I will stand aside until the first of the next week to see what the markets bring. Make no mistake I definitely want to find a level to suggest buying, but not there quite yet.
Patience Grass Hopper
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