COF reaction causes gap and go in December Live Cattle futures

October 24, 2016 6:38AM CDT

Is it premature to conclude that the bottom is in?

Today’s bullish reaction in cattle futures not surprising considering the record low placement number for September, 98.15%. Wire services indicate the number was the lowest September placement on record, beating last year’s September which was also a record low. Traders were ahead of the report with what appears to be short covering in the December with open interest decreasing there. But with open interest increasing in the Feb. and April contracts, it appears that traders are taking advantage of the rally to extend or increase hedges or downside exposure into next year. The placements number and the resulting reaction could have traders thinking the number reflects an absence of cattle to place in feed yards. Wire service reports from various commentators caution that the cattle are still on pasture lands, but the low prices we have seen recently have not inspired producers to bring them to feed lots for finishing. Technically, cattle futures are bumping into the 50 day moving average. Ability to first close above and then trade above this key technical level, 105.60, would be clear signal of potential trend change. A quick look at the December chart shows cattle have spent only about 30 days above the 50 day moving average so far this year. Wire services also highlight that the Cold Storage number is up almost 5% year over year. This is further evidence that, today’s reaction notwithstanding, the market will still continue to contend with more than adequate supply in the months ahead.

Here are the numbers for the USDA COF as reported by the CME:

On feed September 1                     101.5%

Placements during September          98.7%

Marketings during September         105.5%

On Feed October 1                        100.5%

Live Cattle 60

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.