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Fed Cattle Futures’ Discount to Cash Narrows | RJO Futures

Posted 02/22/2017 2:56PM CT | Jeff Gilfillan

Both the live cattle and feeders continue to show strength going into Friday’s COF report. In my last blog, we talked about post 01/27 COF report gaps being filled, and now the futures are creating new gaps below. I would expect these gaps to be filled sooner than later. The recent strength comes from strength in the product market. This morning’s Hightower Research reported that yesterday’s mid-session boxed beef cutout value at 191.81 was the highest level since February 2nd.

Last Friday’s COT report showed non-commercials net long live and feeder cattle, but not close to extreme levels so this was mildly bullish. Spreads are still historically wide and present bears another outlet for shorting nearby futures. April/June (see chart) double topped on a daily at 10.00 which was my resistance mentioned last blog. This spread has already narrowed from H/L almost $2.00, so spreaders and outright market bears should look for waning momentum before adding aggressive shorts.

If you are bullish, the outrights from June to December look cheap, but the markets discounting the deferreds as a result of larger than expected cattle yet to be placed, cheap feed, and large frozen stocks. There are also concerns of the potential impact of possible protectionist measures from the new administration, although this would impact the pork industry much more.

I think the beef market is likely going to consolidate with a bias to the upside. Knowing we’re at a pretty fair value as it stands now, option sellers may do well in this environment for the short and intermediate term.  

 

 Live Cattle April 2017 Daily

 Live Cattle Daily Chart

Live Cattle – April over June Spread

Livestock Monthly Chart

Live Cattle Monthly Continuation

Livestock Monthly Chart

Source: Track’nTrade

Jeff Gilfillan