Sort and Cull

February typically is a challenging month for the cattle sector, but it's perplexing to sort through the recent slew of bearish news and try to figure out the possible market outcomes ahead.

Last week, cattle prices fell from headlines on threats of tariffs, Mexican cattle imports to resume soon into the United States, and a new strain of avian influenza. But, on Feb. 10, both the live cattle and feeder cattle markets traded higher throughout the day after seeming to have found some stability again in the futures complex.

For starters, it's likely this upcoming week the cash cattle market will trade lower since last week packers were able to secure some much-needed inventory. Last week's negotiated cash cattle trade totaled 72,948 head. Of that, 79% (57,574 head) were committed to the nearby delivery, while the remaining 21% (15,374 head) were committed to the deferred delivery.

Also last week, Southern live cattle traded mostly for $206, which is $2 lower than the previous week's weighted average, and Northern dressed cattle traded mostly for $328, which is $1 lower than the previous week's weighted average. This is the first time cash prices have traded lower in 11 weeks. So, without the rallying nature of the cash cattle complex, how much upward potential does the futures complex possess for the near term?

You could look at Monday's close and see that the spot April contract was able to maintain its position above the market's 40-day moving average and find this supportive. But what does it mean long term? Will the support the market recently found continue to act as support in upcoming days? Or will the lack of fundamental support, likely from lower cash cattle prices this week, pressure traders to liquidate even more and break below the plane established last Friday?

As always, these are all questions only time will perhaps answer. There are plenty of dynamics at play, especially considering the large pull that money-managed funds currently have on the cattle complex. Stay alert, stay engaged in the marketplace, and as always, remember that when it comes to markets, people love to react emotionally first and think later.

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

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