DTN analyst expects volatility and predicts upturns in live and feeder cattleWritten by Natasha Wheeler
“There is probably only one word to describe the livestock markets for the next quarter and that word would be volatility,” stated Darin Newsom, DTN senior analyst, in a quarterly outlook presentation on Feb. 2.
Newsom evaluated the trends of market structure, reviewing the trends of futures and looking at long-term monthly charts as well as intermediate weekly charts.
“These trends reflect movement of noncommercial or investment money,” he explained. “Therein lays the problem with the livestock market with the constant, and quick, flow of investment money in and out.”
Two- to three-dollar moves in live cattle and three- to four-dollar moves in feeder cattle, both up and down, have become somewhat normal day to day.
“I also like to look at seasonality,” he noted. “But, the more broken these markets become, not just livestock but all commodity markets, the less reliance we can have on seasonality.”
Live cattle markets began a long-term downtrend around December 2014 and hit a low in December 2015 at about $122.
Now, Newsom mentioned, “The market has stabilized now between that support around $122 and this first resistance level, just short of $140. That’s pretty normal for a market to do as it tries to find itself, to bounce back about a third of what it sold off and start to fluctuate.”
Although cattle markets have not followed technical trends historically, they appear to be doing so now.
“This is probably one of the key characteristics that has changed in livestock markets. They are more technically driven now, meaning there is a larger influence from the noncommercial traders, and they follow these technical patterns relatively closely,” he explained.
In the big picture, the major trend for live cattle has turned sideways, between a $139 resistance level and a $126.50 support. The next levels are expanding and could go up to $147.35 and $115.55.
“For April live cattle, I think the secondary trend is up, with a price near $139 or possible up to $144. We should continue to see support coming from noncommercial short covering, based on the stronger fundamentals that we have,” he stated.
Seasonal markets support the prediction that markets will rise and Newsom estimates that April live cattle markets should go up as we head into the next quarter.
“The feeder cattle market is one of the picture-perfect markets if we look at nothing but classic chart patterns,” Newsome remarked.
The market appears to be in a long-term five-wave uptrend, following an Elliot Wave chart pattern.
“Right now, support is above the long-term low of $143.20 with the upside target between $165.15 and $174.15,” he said.
The trend is up for March futures in the feeder cattle market, and he commented, “The contract should be able to build off the recent test of support between $154.30 and $150.10. This could lead to an extended rally into the area of $165.25 and $177.10.”
The feeder cattle market has been in a seasonal pattern for much of the past year and fundamentally, the March to April futures spread is reflecting a bullish commercial outlook.
“We could begin to see an uptrend begin to build, although it may take a couple of months,” Newsom predicted. “But, we’re seeing it start to develop, so I would look for the feeder market to start to stabilize.”
More information is available at dtnprogressivefarmer.com.