Sort & Cull

Back on Feb. 10, it appeared that the feeder cattle market provided an excellent example of why technical analysis can be a valuable addition to the toolbox. A DTN blog post at the time examined the ascending triangle pattern and what signs to look for going forward. Now that the results are unfolding in real time, a second look seems well worth the while.

For reference, the initial post "In Volatile Times, The Ascending Triangle on the Feeder Cattle Chart May Be Our Guide" can be found at https://www.dtnpf.com/….

Worth repeating -- emotions, anxiety and volatility always run high when a market is in record territory, that's the price to be paid. But given how much is at stake, how does one try to minimize emotions and make practical decisions as well as possible? Technical analysis can be a great addition in such circumstances.

The zoomed in, daily version of the continuous feeder cattle chart that we previously considered displays the updated ascending triangle that prices broke out from at the end of December. The burning question on everyone's mind at the time was: Is the late January, early February break and retest of the breakout marking the end of the rally or just a correction?

This was the advice I wrote at the time: "Starting at the end and trying to answer that as best I can, it is very common to see a correction after a breakout, testing support that had been old resistance. You must remember, prices have been rallying sharply since the September low in this case and substantial profits will be held by some, thanks to the $50/cwt gain. It is not uncommon for profit-taking to occur after a breakout with the trigger this time being the opening of the Mexican border and delay of tariffs on imports."

"The normal pattern would be for support at old resistance to hold, attracting new buyers that want or need to buy (including those holding short positions that are abandoning their thesis), turning prices back up and on their way to the next target."

As it turns out, that is exactly what has happened, much to the delight of cattle producers.

What turned out to be even more impressive was that the leg higher currently being experienced is taking place while equity markets are under significant pressure. Right or wrong, market analysts and traders consider beef as a luxury item that is usually replaced by cheaper alternatives in tough economic times. It is very uncommon to see this type of a lack of correlation between the two -- with April feeder cattle up $22/cwt or 8.6% since Feb. 11, while the S&P 500 fell 590 points or 9.7% by the March 13 low.

Looking forward from a technical analysis point of view, the eventual target for the move is determined by assuming the price will rally as much after the breakout as it did when forming the base of the ascending triangle.

In this case, the late break in 2023 resulted in prices falling from $265/cwt to $209/cwt or roughly $56/cwt. The target following a breakout of the ascending triangle would then be calculated as the resistance level of $265/cwt + $56/cwt = $321/cwt (for nearby feeder cattle futures). So far it has added about $22/cwt of that target with the market now looking quite overbought. A temporary pullback on profit-taking to relieve that condition would be understandable, even healthy.

But is it reasonable to assume the rest of the move is within reach? That is not a question for technical analysis to answer. It is just a target based on past behavior. The limited supply of feeder cattle and the lack of herd expansion means it may be a greater problem as time goes on. The high cost of breeding stock, along with higher interest rates, makes expansion a challenge on an industry wide scale. Add in the potential for imports to be disrupted in the current political environment, the continued consumption of beef regardless of price, the sign of relative strength in the midst of weakness around, and so on -- these all will have the final say.

As previously mentioned, unforeseen events can change both the fundamental and technical outlooks. The goal is to develop plans based on targets but also know ahead of time how the strategy should change if it no longer appears that the targets are valid. And always monitor the situation for signs of an outright failure of the thesis, complete with a strategy on how to deal with it.

The notable risk still lurking in the shadows is the managed money trader record net long position and the risk of a disorderly liquidation as seen recently in the grain and oilseed markets. Although that is still a possibility, it's worth recalling that the final $65/cwt gain prior to the 2014 top in feeder cattle had a similar setup. In that case, the managed money traders patiently waited for higher prices before taking profits on long positions while the producer/merchant/processor/user group pushed prices up while buying back their short positions. In effect, the final $65/cwt was a liquidation phase for all market participants -- and something similar cannot be ruled out this time. Supporting such a theory is the lack of a sharp break recently when outside investors appeared to lose confidence in the economy being able to avoid a recession, given the speed of changes being implemented by the Trump administration. If funds didn't bail out of long positions then, what would it take for them to give up now?

**

I welcome feedback along with any suggestions for future blogs. My daily comments can be found in Plains, Prairies Opening Comments and Plains, Prairies Quick Takes on DTN products.

Mitch Miller can be reached at mitchmiller.dtn@gmail.com

Follow him on social platform X @mgreymiller

(c) Copyright 2025 DTN, LLC. All rights reserved.