Call the Market

Wouldn't it be nice if the lessons taught in Econ 101 applied to the markets? When supplies are tight and demand is strong, prices are supposed to trade higher. But the problem with looking at the marketplace through a solely fundamental perspective is that the other two factors that affect the market's prices are forgotten about: the technical and psychological factors.

I personally am a fundamentalist at heart. I love how tangibly apparent the market's fundamentals are and find it much easier to interpret the marketplace when things are straightforward, black and white.

But today's struggle isn't a matter of the market's fundamentals. Heck, if anything, the market's fundamentals are encouraging traders to push both the live cattle and feeder cattle markets higher as beef demand is pushing boxed beef prices to new highs, and because packers don't have an overabundance of cattle committed to them. The fed cash cattle market has been scoring record-breaking highs nearly every week.

The problem in the cattle complex today lies in the market's technical and psychological realms. In traders' defense, this rally has surpassed anyone's highest expectations; but, during the last two weeks, traders have growing concern that both the live and feeder cattle markets are overbought. This is problematic, however, for the marketplace as a whole. While traders want to push a downward correction on both the live and feeder cattle contracts, the market's fundamentals insist that the contracts trade higher as fed cash cattle prices and boxed beef prices continue to inch higher.

This is why there seems to be such a power struggle in the current marketplace. When the markets' two biggest factors (its technical and fundamental indicators) work against each other, then turmoil, volatility and uneasiness should be expected.

Given the wild rally the market has been able to accomplish, it's anyone's guess what will happen in the days to come. There's a chance that because the market's fundamentals are so supportive, traders allow the contracts to chop merely sideways for a while until the pressures of summer develop and both cash prices and boxed beef prices weaken. But there's also just as likely of a chance that traders turn their head in the opposite direction of any positive fundamental move and work the futures complex lower as they're concerned about things like the tensions in the Middle East, the risk that New World screwworm presents, and so on.

So, while I wish I could tell you exactly which way the market was going to trade in the future, I'm sitting here, glued to my computer screens just like you. But I promise to keep you up to date on all relevant factors and keep my finger on the pulse of anything that may influence change in this marketplace.

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Editor's Note: Get ahead of the herd with the latest insights on the cattle market's changing cycle. Join us on June 24, from 10 a.m. CDT to noon for an in-depth analysis of how weather patterns, trade disruptions, and drought are reshaping the beef industry's traditional 10-year cycle. Oklahoma State University Livestock Marketing Specialist Dr. Derrell Peel shares what the cowherd of the future will look like, while DTN experts share details on weather conditions for forage and pastures, hay market dynamics and what it all means for fat and live cattle prices. Register for free here: https://dtn.link/….

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

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