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Feeders are the Leaders, Can the Cattle Complex Break Out of Highs?


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Strategy of the Day 1.6.2020

Feeders are the Leaders, Can the Cattle Complex Break Out of Highs?

January Feeder Cattle futures are trading at their 2020 highs today and testing the breakout of the highs the market made in November. This rather unprecedented rally in the cattle complex has some fundamental traders scratching their heads, as trade news has been anything but excitedly bullish the last couple weeks. This brings back into question the technical side of the markets, where both Feeders and Fats alike are seeing the bulls take back the consolidation of the last few weeks. I have discussed in my previous SOTD articles, how February Live Cattle futures were holding a sideways price structure and remaining in an uptrend that would be expected to resume if the market respected the 124 technical line in the sand. If I had been covering Feeders in past reports, I would have likely mentioned as similar level at the 142 price, where the January Feeder market broke out in December.

The only noticeable commitments in the cattle complex, are with the Live Cattle contract, where funds are still very net long; which is not traditionally seen as bullish (particularly at highs in a markets price). Couple that with the near 300 point premium the futures are trading to the cash, and its becomes clear why there are some fundamental reasons to be concerned about cattle prices. On the other side of this coin, demand looks firm, with the USDA expecting 2nd quarter beef production to increase by 520 million pounds. In addition to expectations, the USDA estimate cattle slaughter cam in at 546k last week, which was up from 468k the week prior and up from 535k a year ago; suggesting that there is no slowdown in demand either.

Todays rally has taken the January Feeder cattle prices back to testing a new breakout level (above November 147.75 high). Following a test of trendline support at 143.4, the Jan Feeders have recovered their entire decline from December highs of 146.65. This recovery is very technical in nature, with today constituting an inside day reversal higher against yesterdays candle, as well as defending the 50% Fibonacci retracement inflection zone around 142.50. Upside technical projections suggest the current rally would target 148.75, with continuation to 152 from larger Fibonacci support (which traded previously 140 and made November lows).

With not much in the way of resistance on the chart above the 147.75 November highs, the next major level of interest is the 160.00 contract highs. While its too early to call for a rally all the way back to these levels, it is not too early to discuss the possibility of new contract highs being the target for the rally that began in August. I bring this up now, because if you project the 100% Fibonacci measurement of the rally from 126 lows to highs of November (147.75) from the low the market made in November (138.275), 159.70 is the 100% extension target (if the rally extendeds to its equal measurement, this would be a technical target). One thing is clear, however, while the market remains above the January low of 142.75, the bulls are still in control of their trend.

In the near term, I expect momentum to continue to carry the January Feeders higher towards 148 and 152 technical upside targets. I view these levels for their profit taking potential from longs, rather than where new shorts would initiate a position. For this reason, and because the trend is up until its not, I expect prices to continue higher to continue a period of price discovery which could result in longs getting targets filled.

Dan can be reached at (312)277-0110 with any question or further comments, and you can click here to get access to the Zaner Ag Hedge daily newsletter to receive his emailed commentary daily!


Get all of Dans commentary, as well as the entire Zaner Ag Hedge teams thoughts:

http://www.zaner.com/landing/ag_hedge_newsletter.asp?AP=DHUSSEY

January Feeder Cattle Futures 60min Chart



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About the author


Dan began his career in 2006 as an arbitrage and clearing clerk for Spyglass Options in the Eurodollar futures options pit on the floor of the Chicago Mercantile Exchange. Taking his employing brokers advice, Dan soon left the floor to pursue a career “behind the screens upstairs”, as there was an inherent lack of opportunity for market making in open outcry pits. After graduating from the University of Notre Dame in 2009 (and for the subsequent 10 years), Dan leveraged his IT background in networking and computer programing to begin developing computerized trading algorithms and trading systems for multiple private equity firms and his own account. He eventually found his specialization in trading carry trade dynamics in currency and interest rate futures; while simultaneously building his experience in trading both inter-market and intra-market spreads. His trading experience later expanded to include most commodity spreads, with an emphasis on carry trade economics in agricultural commodities. In 2016 Dan decided to take his career full circle by becoming a series 3 and 34 licensed broker; and expanded his outreach to the agriculture production community. In 2018, he joined Zaner Financial Services Ag Hedge division, bringing his knowledge and expertise of carry trade economics and continues expanding exposure to spread markets. Dan can be reached at (312)277-0110 by phone, @DanielHusseyJr on twitter, @DanSOTD on facebook, and emailed at dhussey@zaner.com.
 
 
Contributing author since 2/15/2019 

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