Looking to the Futures

Live cattle traded lower in Monday’s trading likely from technical resistance after recently reaching new highs. Live Cattle for April delivery, /LEJ25, settled at 205.9, down 1.05 from previous settlement.
 

The topic of trade is still on the mind of all traders even as rumors flew about the easing of blanket tariffs in favor of more focused tariffs. Currently, the US has imposed a 20% tariff on China and in return, China has imposed 10% tariffs on agricultural products and delayed renewing licenses to US agriculture exporters, to include beef exporters. 
 

In order to sell products in China, companies must acquire a license in order to import goods into the country. From a deal made in 2020 by the first Trump administration, US meat plants were given a 5-year license and China would purchase $200 billion worth of US goods over a two year period. China failed to meet this goal, and the licenses have now expired which puts renewed focus for the Trump administration to win a new deal with the Chinese government. 
 

America is not in the same place it was prior to the Covid era. Countries believe they have a better understanding of policy implementation of the Trump administration and have become less reliant on trade with the United States. In 2018, China sourced a majority of its soybeans from the US, now the US is its secondary supplier. The same may be happening with US beef exports, China’s usage of import licenses is a tactic in trade but might signal to other countries, like Australia, that China is open to a trade relationship. Mexico and Canada are behind China in US beef consumption but even those exports are down year over year. 
 

Monday’s Boxed Beef report from USDA showed a narrowed choice/select spread at $13.52. Choice was at $327.10, up by $1.65, as was select at $313.58, up by $3.96. The slaughter report came in at 560,000 head for the week as of March 22nd, down 24,000 head from previous week and down 32,712 head from the same week last year.

Live Cattle for April delivery, /LEJ25, settled at 205.9, down 1.05 from previous settlement. The below chart is the continuous chart with the April contract being quoted. 
 

The 50- and 200-day simple moving averages are well below the price of live cattle which is bullish. Other indicators will need to be utilized to determine if this trend should continue. The 50-day SMA is at 199.706 and the 200-day SMA is at 188.241.
 

The 14-day RSI is at 63.83% and moving away from the overbought threshold of 70%. The recent crossing above the overbought threshold will typically result in short-term resistance to cross below the threshold as the price cools, which is what is seen in the chart. It is also important to note that according to the continuous chart, live cattle price action marked a double top which can be seen as a bearish chart pattern though not a guarantee. 
 

The Directional movement index, DMI, indicates a bullish trend with weakness. The average directional index, white, is elevated and moving upward. This indicates a strong and growing trend. The positive directional index, green, has turned down indicating a possible shifting trend which explains the negative directional index turning upwards.

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