Live Cattle

Most of the futures contracts traded at present were conceived in a bear market environment.  Hence the sharp discounts.  Disbelief of a reversal of the environment has stunted the ability of the futures to react to the change.  The cash market is the market and it says cattle are worth $136.00.  You can believe what you want about the future, but cash out of packers pockets today was at $136.00.  So, although fats may, or may not be finding a top, with the environment no longer a bear market, there is little to do but aggregate the antiquated futures price to the current cash price.  With these discounts moving all the way out to April of ’18, there is tremendous work to be done to achieve an even basis, at any price level, of the expiring contract month as they come about.

There were a few new developments that occurred today.  One is that at the end of the FCE trade, futures didn’t sell off, they remained at their elevated levels on the day.  This suggests the trade is attempting the aggregation of the basis.  Potentially, this signals, along with ever increasing open interest, that mentality is changing.  Another change is that more traders now see the aspects of the JBS-SA ordeal to be more important towards US exports than initially thought as it appears beef producers are scrambling to defend themselves.  Today, futures traded limit up.  How long has it been since we’ve seen this?  These factors are important.  I recommend you not ignore them.

The price range today begins to skew the wave count away from the thoughts of this rally being a B wave.  Hence, reduces the likelihood of a C wave decline.  I did notice the boxes were lower at mid-day, but that didn’t seem to slow anything down.  There remains a lot of jostling to go through, but all in all, the change in environment alone should help considerably towards staving off the supply bears.