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312-207-1800(November 23, 1999) CATTLE: Last week live and feeder cattle futures spent the week challenging new contract highs and later retreating as traders were looking at record demand and on the other hand were reluctant to hold positions ahead of last Friday's USDA seven state Cattle on Feed report. The week started out like gangbusters as bullish sentiment saturated the market. Traders were confident that with rising boxed beef values, especially during turkey and ham season, that cattle feeders would have no trouble getting $71.00 for their market ready animals. Traders became a little nervous by Thursday when cash trade was still at a standstill. However, following the close packers threw in the towel and raised their bids to the $71.00 level. Unfortunately, with the USDA Cattle on Feed report scheduled for release following the close Friday, many traders were reluctant to take long positions. As a result, the February live cattle, after hitting a new contract high of $71.35 on Wednesday, was unable to muster any momentum to the upside. The February live cattle finished the week at $70.85.
The USDA reported after the close Friday, Cattle on Feed for the seven-state area as of November 1st, to be at 9.769 million head or 106% as the same period as last year. Pre-report estimates had forecast the number to be at 104.2%. Gross Placements for the month of October were at 2.609 million head, or 109%! Pre-report estimates had been at 102.5%! October Marketings were reported to be at 103% as expected. Traders deemed the report very bearish.
The cattle market should come under pressure the week of Thanksgiving as the market settles into holiday trade. A 50% retracement of the October 27th to November 17th rally in the February live cattle would be at the $69.60 level. Look to go long at that level.
For the week ending Thursday November 18th, the USDA reported out of Amarillo, TX that they had moved 82,700 head at mostly $71.00. Dodge City, KS reported moving 79,600 head at mostly $71.00. Kearney, NE reported moving 87,300 head at mostly $112.00 on a dressed basis.
Boxed beef movement was active last week. The light choice rallied more than $3.00 by Friday and has many traders concerned as to whether it can sustain the new levels. Mid-day Friday the USDA reported light choice to be at $118.32. Heavy choice was at $118.60. Light select was at $105.84 and heavy select was at $105.18.
RECOMMENDATIONS--Don't get me wrong. I'm still bearish and I believe the USDA backed me up with the October Gross Placements figure. I still think that $69.00 February put options are a good buy at $1.20. However, the chart is bullish and a 50% retracement of the October 27th to November 17th rally would be at the $69.60 levels. Buy the February live cattle at that level for a short-term trade that hopefully will test of the contract high of $71.35
Moore Research of Eugene, OR has determined that if you had sold February live cattle on or around November 26th, and had held them until December 4th, for twelve out of fifteen years you would have had a profitable trade. That's no guarantee that it will automatically work every year, but the odds sure look good!
Les Jones