Last Friday’s Cattle on Feed report was bearish overall and markets created a gap lower on Monday morning. COF was up 4.5% from the prior year and the third highest level on record. While the supply is bearish, the front end supply still remains current reflecting robust demand and strong marketings. Marketings were up 4% YOY. The big surprise was the high level of placements reported for June. Placements were up 16.1% YOY which is the fourth highest June placement on record.

The charts are bearish. We are seeing lower highs on the daily, RSI is drfting lower and some EW analysts including RJO’s Dave Toth consider July’s rally as a 3 wave corrective rally. 

My value range in fed cattle remains in tact (106-118 to 125-127), and I repeatedly see little fundamentally for this LT value area to be breached anytime soon. There are several gaps to fill in front month fed cattle futures (119, 124.50 then 127.10). The shakeout areas are 125 then 128.50 in LCQ7. In feeder cattle the sub 140 area and 135 areas are key supportive areas that maybe good lines in the sand for those looking to hedge a break below.

Funds are still stubbornly long and my guess is this will continue unless we see a sustained trade below July lows or a repeat break of the transitional zone (108-112) to the downside in fed cattle futures front month. If the LC does washout consider a long from 104-106 area. We may not see this until September, but it may be a good time to set some alerts.

Repeatedly, this is a good market for hedgers on both sides of the trade. Have a plan and keep an eye on 112 in live cattle futures and 135 in feeder cattle futures as key underlying support.


Live Cattle Weekly Chart

Live Cattle Weekly Chart

Source: TrackN’Trade

Jeff Gilfillan