Markets always have a way of keeping a man humble. Just when you have figured them out, they change. However, in that pursuit of understanding, there are some key benchmarks that are helpful when making decisions about the road ahead. To that end, buyers and sellers have a plethora of information from among supply and demand data sets to guide them on their journey. While all of that is being hashed out, price charts become the road signs to provide some degree of understanding about what that road may look like. A quick view of a Monthly Cattle Chart (see below) does a good job in that regard.
Since 2004, there are two different price points that have served as tremendous levels of support and resistance within the Live Cattle market. Those levels are $100 and $120/cwt. In that time, as prices climbed higher, there was much resistance in moving through the psychological barrier of $100/cwt. As drought burned up the Southern US in 2011, prices rose steadily to roughly $120/cwt where it encountered resistance, retrenched from support at $100 and then made another run to the $120 zone. That level served as solid resistance for five years until last summer when the market penetrated the $100 threshold for a brief stay before again returning to today's level near $120/cwt.
What is interesting about the cattle market is that it often gets caught in $20 zones. Looking back over the last 45 years, prices have traded three previous $20 ranges. The first range formed between the $40's and the $60's and covered the decade of the 1970's. The second range lasted for roughly 25 years (1979-2004) and bounced back and forth between the $60 and the $80/cwt level. The most recent range spanned the seven years from 2004-2011. This leads us to today. Could it be that the most recent action in the market is creating a fourth range for the cattle industry to operate in for the coming years? It is entirely possible.
As we evaluate current fundamentals, the next big benchmark will be the January 1 cattle inventory report which comes out at the end of the month. Trends suggest a growing herd. With the recent shake-up in export stability and ongoing inventory, this may mark an end to the recent test of $120/cwt. While only Live (fat) cattle have been mentioned in this update, there is a strong correlation with feeder cattle. On both fronts, we advise action on any open inventory that you currently have in place. Give us a call to sort through strategies that fit your finishing/backgrounding schedules. 608-960-4771