Price action: April live cattle rose 52.5 cents to $140.85, the contract’s highest closing price since $141.425 on Feb. 28. April feeders edged up 20 cents to $162.60.
Fundamental analysis: Cattle futures built modestly on yesterday’s advance and ended at the highest level in over two weeks, supported by sustained wholesale beef strength. Choice cutout values surged $1.49 to $257.00 at midsession today, which also marked a $4.56 rally since the benchmark bottomed at $252.44 a week ago. We suspect that wholesale strength, along with strong futures gains the previous two sessions, is encouraging greater optimism about the outcome of this week’s cash cattle trading. Yesterday’s futures strength was particularly impressive since it came amidst widespread equity and commodity market weakness, along with U.S. dollar firmness. This seems to reflect improved industry optimism about the size and sustainability of the usual early-spring rise in cash cattle prices.
Yesterday’s strong feeder response to renewed grain and soy weakness likely reflected increased optimism about the short-term feeder cattle outlook as well. However, with the latest quote for the feeder index having dipped to $152.31, the premiums built into nearby futures look rather large. That is, the expiring March contract (going off the board March 31) ended today about $4.00 over the cash equivalent price, whereas the April contract settled over $10.00 higher. This almost surely anticipates sizeable grain market losses and sustained fed cattle strength.
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Technical analysis: Monday’s strong rally in April live cattle smashed resistance at the contract’s 10-day moving average of $138.29 and put bulls and bears on a more equal technical footing. However, bulls couldn’t mount a serious challenge of resistance at the contract’s 20-day moving average near $141.33 and left tougher resistance at the contract’s 40-day moving average near $142.85 very much intact. A breakout above that level would open the door to a challenge of the Feb. 16 high at $147.70, then the contract high at $148.70. Support defined by today’s low at $140.03 is backed by the 10-day moving average, then last Thursday’s low of $135.825.
April feeder futures edged above resistance at the contract’s 20-day moving average at $163.73 but couldn’t close above that level. Additional resistance is at the 40-day moving average of $166.54. Bulls are likely targeting the $170.00 level, then the February high at $173.975. Look for initial support at today’s low of $161.00, then the $160.00 level, which is reinforced by the 10-day moving average at $160.02. A drop below that level would have bears targeting last Thursday’s low of $156.05, then the March 4 low at $154.275.
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