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Something Up With the Beef?

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Something Up With the Beef? No, I'm not talking about the rally. That's pretty obvious. What I'm referring to is what is going on in this rally that didn't occur in previous ones (since the top in beef earlier this year). Live cattle are still stuck under their 200 avg. on their daily chart. If they were meeting the potential seen in their June/July rally they should be up around 112.00. They are not. So you go to the December contract. If they were matching their potential seen in their June/July rally they should be up around 114.85. They are not. If you compare the differential between live and feeders when rally tops were reached this year, there has been a pattern. There has been three major tops so far this year. The one in May (when feeders topped first) live/feeders had a differential of 38.35. The June top produced a differential of 35.62. The July top 34.90. As you can see there is a pattern. When the differential gets in that area, beef has been selling off. If you go to the Dec cattle/Nov. feeders the same differential occurred: The May top produced a differential of 35.27, June 32.97, July 32.35. The differentials now are much higher with this rally. Right now that differential between the Oct live/feeders is 45.70, between the Dec live/Nov feeders 39.35. So are we near a top? Apparently something is overextended or something needs to catch up. Will the live cattle finally move to realign with what they did in June/July? And even if they do, the differentials are still high: comparing Oct live/feeders it would be 40.50, Dec live/Nov feeders 38.42. If this variation in the differential means anything, is beef telling us this rally is getting into exhaustion territory? Or is another dynamic at play?

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Judy Crawford

Senior Broker

Zaner Group



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