Avian Influenza, Technicals Pressure Cattle Complex  

  • Nearby live cattle futures closed at $178.90 per hundredweight, up 0.4% on the week. 
  • Feeder cattle futures fell settled unchanged on the week to $237.60, climbing back from midweek pressure.  
  • Weekly beef export sales added up to 13,600 metric tons, down 27% on the week and up 2% from the prior 4-week average. Shipments: 13,900 metric tons, up from 13,300 metric tons a week ago and below 15,900 metric tons a year ago.  

Commentary by Trey Freeman

Wednesday proved a tough day for the cattle complex. Stronger-than-expected inflation data plunged Dow futures more than 450 points. That caused cattle futures to drop. Prices then passed a litmus test of perseverance. They reversed higher in the face of lower financial markets. Another reversal crept around the corner. 

Then, morning boxed beef prices softened, placing renewed pressure back onto the cattle futures. The nail in the coffin came shortly after noon. The news hit the market: Domestic cattle import restrictions in states reporting cases of avian flu. Feeders and live cattle prices reacted negatively. The markets closed lower, inflicting further technical damage on the charts. 

As of midweek, 17 states have imposed some sort of import restrictions. Those states will not allow cattle from Texas, Kansas, New Mexico, Ohio, Michigan, and Idaho. How these restrictions hamper the cattle trade is unknown. Cash is likely to suffer as futures tumble. Until more details surrounding the restrictions emerge, further downside caution is possible. 

Funds Position Eyed

Seasonal charts add salt to the wound. Historical price action suggests a steep decline in May feeders from mid-April into expiration. That seasonal pattern introduces a summer run-up in the August through November contracts. June live cattle, seasonally, tend to fall from mid-late April deep into May. 
 
As of April 9, funds remain net long 46,155 cattle contracts. This can provide firepower to take futures another leg lower if sentiment or technical indicators push money to the exits. This depends on whether avian flu headlines keep funds in a derisking mode. There’s an old saying; “If goods don’t cross borders, armies will”. In this case, armies represent “the funds” and borders “price support”. Quantity has a quality all its own when it comes to money flow from funds. This often amplifies a move in price. 

Learn From Mistakes

A chartist thinks May feeders need support at $234 per hundredweight or the door opens to $231. August feeders need to hold $244 per hundredweight. August doesn’t show technical support below $244 down to the December low of $229.500 per hundredweight. June live cattle have firm support at $169 per hundredweight. 
 
“Woe to the vanquished”. In other words, the defeated are at the mercy of their conquerors. This is what the Gaul’s said to the Roman Republic after sacking Rome in 390 BC. Forevermore, Rome emphasized the need for a more formidable army and city defense. This gave rise to the Roman Empire not falling to an outside invader again for another 800 years.  
 
It’s a mistake not to have a risk management plan in place. This leaves you exposed to the market. A plan offers a strong defense to combat adverse movements in price. We owe it to ourselves to learn from past mistakes.  

For assistance in what’s best for your operation, please reach out to our team to discuss strategies in depth. Give us a call! 

 

Futures and options on futures trading involve significant risk and are not suitable for every investor. Information contained herein is strictly the opinion of its author and not necessarily of Ever.Ag and is intended for informational purposes. Information is obtained from sources believed reliable but is in no way guaranteed. Opinions, market data and recommendations are subject to change at any time. Past results are not indicative of future results. Trey Freeman, Matt Wolf and Cole Adams maintain financial interests in the commodity contracts mentioned within this research report at the time it is published.  Antonio Corona, Brad Lyle, Stephen Hardison, Michael Todd Rowen, Dan Johnson, and Colton Vondra do not maintain financial interest in the commodity contracts mentioned within this research report at the time it is published. This report is in the nature of a solicitation. Reproduction or redistribution is prohibited by law. Ever.Ag Insurance Services is an affiliate of Ever.Ag and is a licensed insurance agency in the following states: AZ, CA, CO, CT, FL, GA, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MO, MT, NE, NV, NH, NM, NY, NC, ND, OK, OH, OR, PA, RI, SD, TN, TX, UT, VT, VA, WA, WV, WI, WY. This agency is an equal-opportunity employer.