April Cattle on Feed report:
On Feed: 94.5% vs estimated 94.8%
Placed: 77.9% vs estimated 77.3%
Marketed: 113.1% vs estimated 112.1%
In a normal market environment this would be a very bullish Cattle on Feed report, unfortunately we are in anything but a normal environment, so it’s taken with a grain of salt. March placements totaled 1.56 million head, a record low for March (data collecting started 1996). Very early indications call for a higher open today, with front months showing limit up, at the time of writing this. We are optimistic on cattle, leaning on that August contract as the foundation of a core long position. Friday’s Commitment of Traders report showed funds holding a net long position of 4,382 contracts, up 2,018 from the previous week.
We are less optimistic about feeder cattle (compared to live cattle). Outside markets are having a meaningful effect on near term price action and that should not be ignored. Grain futures have rallied over the last week which may also provide a headwind in the near term. We are working with hedgers to sell rallies in the deferreds, even if it’s just for overnight protection. Due to the volatility, many of the technicals become less meaningful, we will have them back in the reports as soon as they re-calibrate a bit.
Live Cattle futures spent most of last week consolidating ahead of Friday’s report, creating several opportunities for shorter term traders for both buyers and sellers to take some meat off the bone. Significant support for the August futures contract comes in from 86.375-87.00, the bulls MUST defend this pocket. A close below could lead to a retest of the contract lows. If the bulls can defend this pocket, we could continue to see the bottoming process take place, forming an inverse head and shoulders on the daily chart. Significant resistance comes in from 92.525-93.675. Consecutive closes above here likely sparks short covering and takes us back above the psychologically significant 100 level.
Resistance: 85.35**, 88.125-89.25****
Support: 79.85-80.70****, 76.60***
Resistance: 90.00-90.70**, 92.525-93.675****, 100.975-104.475***
Support: 86.375-87.00****, 84.575-85.175**, 80.50****
Feeder Cattle (August)
August Feeder Cattle futures continue to loiter in the middle of a range, creating a wedge with higher lows and lower highs. This can often lead to a bigger directional move, a breakout or a breakdown. We are leaning on the optimistic side but aren’t getting married to it until we see technical confirmation. Resistance today comes in from 130.30-131.225. These are wider ranges than we typically like to rely on, but that’s the environment we are in. If the bulls can achieve consecutive closes above this pocket, we believe that would open the door for a retest of the March 25 highs, 139.00. On the support side of things, 121.00-121.65 is a significant pocket. A close below here could take us to the gap from April 6th, 118.825. We believe the bull camp has a slight advantage on the chart, but they need to see a move above resistance soon. A failure will show a lack of conviction and the bears could pounce.
Resistance: 130.30-131.225***, 134.10-135.10**, 137.70-139.125****
Support: 123.475-124.30***, 121.00-121.65****, 118.825**
Lean Hogs (June)
June Lean Hog futures managed to grind higher last week in what was its most successful week in what seems like a lifetime. We could see an extension towards the April 8 highs, 57.15, but we wouldn’t be looking for that to be a straight line. The bull camp should still tread lightly. Previous resistance now becomes support, we see that at 49.175.