Looking to the Futures

Bullish live cattle futures were supported by weak slaughter report and an agricultural trade deal with the UK during Thursday’s trading. June live cattle futures, /LEM25, settled at $214.25 cents per pound, up 1.725 from previous settlement. 
 

President Trump announced a comprehensive trade agreement with the UK on Tuesday. The fact sheet states, “This trade deal will significantly expand U.S. market access in the UK, creating a $5 billion opportunity for new exports for U.S. farmers, ranchers, and producers.” It also reduces the trade barriers in place which prevented US agricultural products from entering into UK markets. The agreement also reduces many of the tariffs levied on UK products but left a 10% levy and 100k import cap on British-made cars.
 

American ranchers would still need to meet the strict standards of UK food safety in order to import into the UK. At the time of writing, the UK government stated the trade agreement would not reduce Britian’s food standards. A majority of American beef does not meet the quality standards set by the British government. As a result, this agreement would likely not have much of an impact on the cattle market. 
 

The southern boarder of the US may give rise to a continued bullish impact if not properly delt with. The New World Screwworm, species of parasitic fly, has been moving north from Mexico after being considered eradicated from the United States since 1982. 
 

In the past, the fly had decimated previous livestock herd through the infection of its larvae which bury into the flesh of an animal. The larvae consume live flesh and if left untreated could kill its host. 
 

Their move north could have a detrimental impact on an already small cattle population in the US. The USDA is currently working with international and domestic partners to prevent this spread. In a study by USDA a previous screwworm infestation cost the Texas economy $329.6M in losses. When adjusted for inflation and applied to today’s livestock numbers, the Texas economy could lose $1.8B. 
 

USDA daily cattle and beef summary were mixed Thursday as the choice/select spread came in at $14.69. Choice cutouts increased by $1.74 to $347.89 and Select cutouts fell $0.80 to $333.20. Daily slaughter for Thursday is estimated to be at 120,000 head, with week to date at 469,000 head. This is 4,000 head more than this time last week and down 15,752 head from the same time last year.

June live cattle futures, /LEM25, settled at $214.25 cents per pound, up 1.725 from previous settlement.
 

Live cattle continues to make new highs and is trading well above the 50- and 200-day simple moving averages. This indicates that live cattle is in a bullish trend. The 50-day SMA is at 203.875 and the 200-day SMA is at 191.851. 
 

The 14-day RSI is approaching the over-bought threshold of 70% and is currently at 67.704%. As it crosses the 70% overbought threshold, resistance may start to show as technical sellers might enter into the market. 
 

The directional movement index shows a bullish trend with weakness. The ADX (white) is elevated, indicating a strong directional trend. The negative directional index is low while the positive directional index is elevated but has started to turn down. This could indicate a possible build up of resistance as cattle reaches new all-time highs.
 

Looking further at the chart, cattle previously topped out twice near the $209 level and recently surpassed it. It’s previous lows, the previous being higher than the low in March, indicate a rising price trend. With resistance building near the top, a retracement near $200 is possible as pricing looks to retest previous support levels.

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