Cattle Commentary: Cattle futures gapped open to start the week on follow through momentum from Fridays session. That was enthusiasm was short lived as prices retreated for the remainder of the day. February live cattle futures finished the day -.30 at 120.725 after trading in a range o f 1.875. Despite trading lower today, we still remain in a seasonally strong time of year. In fact, if you had bought February live cattle on December 13th and held to December 28th for the past 15 years, you would have been profitable for 14 of them with the average gain being 2.41. January feeder cattle squeezed out a .05 gain finishing at 147.80, they traded in a range of 2.200 on the day. Fridays Commitment of Traders report showed that funds reduced 17,262 live cattle contracts. We saw some decent cash trade late Friday from 120.00-120.50. Cash trade will continue to be monitored closely this week, but Fridays Cattle on Feed and Cold Storage report will be big events. Fridays reports will be released during the trading day which could shake things up a bit considering we could see a thinner volume with Christmas right around the corner. We will have our estimates for these reports in the coming days.
PM Boxed Beef Choice Select
Current Cutout Values: 203.15 185.01
Change from prior day: 1.28 1.76
Choice/Select spread: 18.14
Live Cattle (February)
Fridays session was constructive with a close above 120.70, a level we have been keeping an eye on for the past month; this represents the middle of the range from the August lows to the November highs. Though futures closed lower, we did hold this level on a closing basis which could encourage some buying activity. If the market can continue to firm up, we could see the market make a run towards 123.35-123.80. This pocket represents a key Fibonacci retracement level as well as the 50-day moving average. On the chart you can also see that this was the breakout level on October 24th and the breakdown level on December 1st. If you have bought the market or reduced hedges over the last week, this would be your exit target. We know that funds have been reducing their long position over the past several weeks and a failure to break out above resistance will lead to additional long liquidation. Ultimately, we expect the market to consolidate into a “tighter” range as we round out the year.
Resistance: 123.35-123.80****, 126.6**
Support: 119.45***117.575**, 116.24-116.80****
Feeder Cattle (January)
January feeder cattle finished the day lower but managed to close off of the lows. The market failed against last week’s technical resistance from 148.85-149.075, this pocket represents the 100-day moving average and the 50% retracement from the August lows to the November highs. If the market can achieve a conviction close above this pocket we could see momentum buyers step back into the market and press us towards 152.25-153, this pocket represents the 50-day moving average and a key Fibonacci retracement level. If the market cannot gain traction above first resistance, it is possible we see funds continue to liquidate their long positions and press us back towards the bottom end of the recent range near 145. The RSI (relative strength index) has worked itself back towards neutral levels with a reading of 43.
Resistance: 148.85-149.075***, 152.25-153.00**, 155.55-155.95***
Support: 146**, 144.15-144.55****, 142.15-142.60***, 136.10**
Lean Hog Commentary & Technicals
February lean hogs opened up on a higher note to start the week, but that enthusiasm faded as markets not only went negative, but also gave up nearly all of the gains from Fridays session. The technical reversal appears to be putting the bears in a good position to start the week. First technical support comes in from 66.50-66.90, this pocket represents the 100 and 200 day moving average, as well as the 50% retracement from the August lows to November highs. Stable cash has been a catalyst for the recent support, but we feel other fundamentals such as weights will keep a lid on any significant rally. We also have a Cold Storage report on Friday, this will be during market hours and could have a big impact on prices over the intermediate term.
Resistance: 68.40**, 69.125***, 70.28**, 72.25-72.45**
Support: 66.50-66.90****, 65.40**, 64.75**