Call the Market

Once again, the cattle market sits in a peculiar position. On one hand, the market's fundamentals are chomping at the bit, eager to continue to see the market trade higher as boxed beef prices and fed cash cattle prices are being more than supportive. But on the other hand, the market's technical indicators are sounding the alarm, seeming to frantically say, "We aren't comfortable up here anymore," as traders remain on edge following the highs made last week in the futures complex.

And what's potentially most interesting about this juncture in time is that both positions -- although they pull the market in opposite directions -- are relevant influences.

So, let's discuss the two positions.

From a fundamental perspective, the market is ripe for rallying. Beef demand continues to drive boxed beef prices higher and higher and, thankfully, this has helped move cash cattle prices higher in recent weeks as it has enticed packers to dive deeper into the cash market. Just last week, the fed cash cattle market scored new all-time highs for both regions as Southern live cattle traded at $210 ($7 higher than the previous week's weighted average) and Northern dressed cattle traded at mostly $335 ($10 higher than the previous week's weighted average). Until packers get enough supply built up to curb their reliance on the cash market, pinpointing when the cash market could reach its seasonal spring peak is anyone's guess. But so long as beef demand continues to be well supported by consumers, the market's fundamentals will likely remain aggressive and eager to charge higher whenever given the opportunity.

On the other side of the coin is the market's technical position and it's not currently as bullish as the market's fundamentals; some would argue it's not bullish at all. When you look at any of the live cattle contract charts, you'll quickly see that new contract highs were scored just last week, and you're quickly reminded that the cattle complex is not only trading at all-time highs in the fed cash cattle market, but also on the futures board. Which then logically brings one to ask, "How much higher can the market realistically trade?" Unfortunately, that's a question that will be answered only with time. However, there are little clues we can watch along the way that will give us insight into whether it's likely traders feel technically pressured or supported. At this point in time, traders are feeling the pressure. Just last week, the noncommercial positions gained an additional 6,090 contracts and traders are now concerned that the market is overbought and could be due for somewhat of a correction. It would be remiss of me to neglect to mention that open interest is also nearing 400,000 contracts, which could trigger liquidation as this is the highest open interest position the live cattle complex has held since 2019.

I share this with you to give some insight into the daily factors pulling, tugging and weighing heavily on the market day-in and day-out. And unfortunately, on any given day, other factors such as tariff announcements or economic changes can turn the market in an instant. I hope you understand that even though the market's underpinning is bullish given its favorable fundamentals, there will be days and weeks in which the market is challenged. But that's not to say its fundamentals won't shine again and prevail. Right now, the market is dancing around potential landmines, trying to balance a heavy load.

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

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