Looking to the Futures

Live Cattle Futures get a technical breather from Monday’s highs for the June 26 contract (/LEM26), down -1.225 cents to 245.80 from Monday’s settlement. Equity futures look higher, crude oil is down after ceasefire announcement. Cattle futures have remained elevated amongst supply limitations from smaller heard sizes, increasing costs of transportation due the War with Iran, New World Screwworm threatening the southern border, higher feed costs, and drought in the western states.

Transportation and transportation fuel costs such as the price of diesel fuel will have an impact on the cost to transport goods, increase prices at the counter, and higher costs for a farmer to operate and maintain their equipment. Year-to-date, Heating Oil Futures (/HO) are higher 77%, RBOB Gasoline Futures (/RB) are up 72%, and Crude Oil Futures (/CL) are up 62%. The U.S. Energy Information Administration, Short-Term Energy Outlook, released Tuesday forecasted, retail gasoline and diesel prices will remain elevated due to global supplied and U.S. Inventories below the five-year (2021–2025) average. 

Box prices weakened while fed cattle prices surged. The numbers of available cattle brings into question USDA data regarding the on-feed numbers. Choice cuts where down $5.30 to $382.74 and Select Cuts were down $2.04 to $386.33 on Tuesday. The U.S Drought Monitor (USDM) notes areas of the Texas and Oklahoma Panhandles, western Kansas, and parts of Colorado, Montana, and Wyoming are dry, increasing the risk for wildfires. Moisture conditions and wildfire possibilities will play into the rebuilding of the nation’s cattle herd.

New World Screwworm is still a threat at the Southern border. One place that cattle markets are hoping to turn to for help with supply is getting the Southern border open to import Mexican feeder cattle. USDA Secretary Brooke Rollins has stated that until the sterile fly facilities in Mexico and Texas can increase production to battle New World Screwworm flies, the border will remain closed. USDA Under Secretary for Marketing and Regulatory Programs Dudley Hoskins says the existing facilities in Panama and Mexico are producing flies at a high rate.

The announcement from President Donald Trump that attacks in Iran will be suspended for a period of two weeks is helping to support equity markets move higher and sparked a major pullback in crude oil prices. Part of the agreement is that Iran will open the Strait of Hormuz. Israel, has also agreed to the terms of the ceasefire. In overnight trading, E-mini S&P 500 Index Futures (/ESM26 - June 26) were up 2.62%, E-mini Nasdaq 100 Index Futures (/NQM26 - June 26) were higher 3.38%, and Light Sweet Crude Oil Futures (/CLK26 - May 26) were down 17.66%.

Live cattle futures have jumped over a previous level of resistance at the February 19th close of 243.375. The June contract reaches a high of 248.45 on Monday and has seen a possible technical sell off after reaching overbought levels on the relative strength index (RSI). Current RSI for the future based on the activity from yesterday shows a level slightly under the 70 overbought level at 67.6189. 

The June contract shows a strong up trend that started after the future was priced lower than the 200-day simple moving average (SMA) on March 9th. Cattle prices have rallied nearly 10% since finding support at the 200-day SMA after reaching a low of 227.325. The 9-day SMA and the 21-day exponential moving average (EMA) both have crossed over the 50-day SMA, with the 20-day SMA, slightly below the 50-day SMA. The Hightower Report Daily Livestock Technical Summary shows the next downside objective is now at 243.920. The next area of resistance is around 246.90 and 248.350, while 1st support hits today at 244.70 and below there at 243.92.
 

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