From the January 01, 2010 issue of Futures Magazine • Subscribe!

Live cattle futures take a dive

Live cattle futures took a nosedive in late November-early December, and analysts don’t see an immediate end to the downside.

Rich Nelson, director of research at Allendale, says consumers are switching to pork and chicken, lessening demand for beef. “They’ve been matching up beef demand with unemployment. Even if unemployment has peaked, the market is still assuming it will be three to six months before that translates into stable beef demand. On the supply picture, we’ve had a few months of higher inflows into feed lots four months in a row. Those cattle will be coming out of the feedlots through March or April. Not only do we have concerns that demand has not stopped falling yet but we also have a small supply bump coming,” he says.

Dan Pavilonis, senior market strategist for Lind Waldock, agrees that cattle’s slide can be attributed to demand issues. “On the retail side, there are less people spending and also a transition into a lot of the trade going from flight to quality. You’re seeing that coupled with tighter spending. It’s making the market liquidate. Stops are getting blown out and the market’s just fallen back.” He expects more downside to the market and says it could get down to 88.12¢ per lb. around mid January. “Towards the end of January, it should start to find a bottoming. I would be a strong buyer in the lower 80s.”

Nelson notes that live cattle has already surpassed its downside by 2¢ to 3¢ and expects more downside in January. “I would not buy this market until we see some trend changes or something on the charts. We look for a stabilization in prices during the first quarter.”

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