Sort & Cull

When analyzing markets technically, it would be insane to overlook the importance of resistance and support planes, trend lines, gaps, double bottoms, double tops, bull and bear flags, and any and all external influences. But just as it's important to analyze these markers in a technical sense, it's equally important to understand what psychological barriers exist within the markets themselves.

The last time the cash cattle market traded at or above $130 was back in June 2017. So, for the last four years, feedlots have slowly grown accustomed to believing that $130 was unattainable. Unattainable because the market's fundamentals didn't support that price threshold. Unattainable because packers didn't need cattle. Unattainable because there was a backlog of cattle. Unattainable because who actually believes that fat cattle will trade above $130? Over time, it's not a matter of what's factual or true, what an asset is truly worth or what's it's perceived to be worth, but it's what we feed ourselves mentally that eventually becomes true.

And that's why last week's success, last week's triumph, last week's victory of successfully trading cash cattle for $130 is such a milestone. There were analysts who didn't believe the market would trade at $130 simply because of the psychological barriers that the market had built into $130 -- not because today's cattle aren't worth $130, because we all know they've been worth that (plus some) for a long time.

Last week's cash cattle trade saw a few pens of cattle move on Tuesday, but it wasn't until Friday that the standoff between packers and feedlots shook out. Last week, Southern live cattle traded for $126 to $130, mostly at $128 to $130, which is $2 to $5 higher than the previous week. Northern dressed cattle traded from $200 to $206, mostly at $202 to $204, which is $2 to $4 higher than the week before. Last week's negotiated cash cattle trade totaled 96,867 head. Of that, 90% (87,369 head) were scheduled for the nearby delivery, while the remaining 10% (9,498 head) were scheduled for the deferred delivery in the following 15 to 30 days.

Heading into this week's trade, it's fair to believe that the cash cattle market stands a strong chance at demanding higher prices once again. How packers committed the cattle they bought last week is extremely telling, and so long as boxed beef prices stay rewarding, then packers should want to keep processing speeds elevated, which means that feedlots stand a chance to gain more leverage this week. Because the mental obstacle of $130 has been overcome, and because the market's technical and fundamental windshield supports this rally -- cattlemen find themselves taking over the driver's seat of the market.

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Plan on attending the DTN Ag Summit, Dec. 5-7 in Chicago, to get an inside look at what the various markets anticipate for 2022. I will be presenting the Livestock Outlook on what to watch for in the year ahead. Visit www.dtn.com/agsummit for more details about the summit and to register. Register before Nov. 26 for the early bird rate.

ShayLe Stewart can be reached at shayle.stewart@dtn.com

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