Cattle is weak. After peaking out in December, live cattle has been in a correction as the equity markets have been making highs. Many had anticipated that cattle would continue to move higher after the droughts we had over the past several years; but this is a different year. Live cattle has pulled back 0.12/lb ($4,800/contract) over the past 3 months and is looking weak. It is holding support at the 124.65 area, but if it breaks (on a 3 day closing basis) it could move down to the 121.70 area.
Weather is everything this year in cattle. If the drought continues, we may see continued selling in the cattle market. This is due to less feed and water which makes for weak calves and the beef is not that good, so ranchers will not pay a premium price for them. On the other hand, if the weather improves, cattle prices will be on the rise once again. One other factor is demand. Demand is down for beef. This can be seen in cattle in the feed lots and those at slaughter. Slaughter is down, which means demand is down. This may be due to the high price of beef or that our economy is still a bit sluggish. So the question is, which of these will buoy the price of cattle?
Below is a daily chart of Live Cattle with a 3, 21, 65 SMA. Notice that cattle broke below all MA’s back in January and holding resistance on the 21 period MA. Until cattle gets back above 128.00, cattle will remain weak. Below 124.65, more selling could step in and take it to the 121.70 area. Watch the weather in the plains states. Good weather (rain) will see cattle move higher, more drought will push it lower. Trade to Win!