Price action: August live cattle futures surged $1.45 to $179.5, while deferred contracts saw greater gains. August feeder futures rallied $2.875 before settling at $248.475, near the daily highs.
Fundamental analysis: Cattle futures surged today, reversing the recent consolidation trend as prices traded at the highest level since July 24. Cash cattle trade has been slow to develop as expected, though it has started off slightly stronger than last week’s average of $184.81 at $185.00. Feedlots are expected to hold offers firm, protecting cash prices despite packer’s access to contracted cattle this week.
Packers seem to be holding off on cash cattle purchases in an effort to reduce slaughter counts and increase the cost of wholesale beef to grocers. Packers have been operating on an estimated loss with high cattle prices and relatively cheaper wholesale prices. If that is the case, thus far they have been successful thus far, as Choice cutout rose $6.28 at midsession to $308.06, the highest level since July 12. While this may prove fruitful in the short run, higher wholesale prices will eventually deter grocers from beef features, which could have lasting implications for demand down the road and bring the recent strength in the cattle complex to an end by early fall.
Feeder futures surged as feed prices continue to stumble. August futures came up just shy of a contract high close- while deferred contracts saw record closes.
Technical analysis: August live cattle futures reversed from Monday’s failed breakdown and broke out higher Tuesday. Bulls supported prices at the 20-day moving average, which will remain support at $177.85, then traded at the highest level in over a week. Bulls maintain the technical advantage, especially after breaking the downtrend line stemming from the July 20 high. Bulls’ ultimate target is the record high at $182.975, with additional resistance at $181.50 and $180.00 on the way. Bears are targeting a close below $177.85, Monday’s low of $176.80, then $175.25.
August feeder futures continue to trade in a largely sideways range, though bulls still own the technical advantage. Bulls are targeting resistance at the contract high at $251.30, with psychological resistance at $250.00 on the way. A daily close above $250.00 would look very bullish. Bears are targeting support at $245.00, quickly backed by $243.25, then $242.00.
