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Cattle Market Predictions: How to Anticipate Market Moves

June 1, 2018 by Daniels Trading| Ag Marketing

The U.S. exports more than 2 billion pounds of beef per year, making the production and marketing of cattle a significant enterprise. In order to offer financial benefits to industry participants, the CME Group offers Live and Feeder Cattle futures products.

Each contract has distinct specifications and plays a unique role in the aggregate cattle market. Feeder Cattle are recently weaned calves, ready to be sent to the feedlot. Conversely, Live Cattle have reached a desired weight and are ready for slaughter. The relationship between the two can be complex, leaving traders to craft cattle market predictions according to a variety of factors:

  • Production/supply levels
  • Global demand
  • Market technicals

In periods where the cattle markets experience extreme volatilities, one or more of the above considerations may be out of balance. When all are simultaneously unstable, market conditions can become chaotic.
Read our e-book Futures Traders’ Guide to the WASDE to learn more about  forecasting for futures trading success>>

Supply-Side Analysis

The available supply of beef is a critical aspect used in the valuation of cattle futures. Supply stems from slaughter-ready Live Cattle. In turn, production costs related to Live Cattle production are key determinants of physical supply levels.

Production costs are broken down into two areas:

30% to 40% attributed to the cost of feed

The price of assorted feeds used to bring Feeder Cattle up to weight may vary. Corn, grain and soybean market volatilities may impact feed cost considerably. As the cost of these inputs increase, beef production and supply is prone to decrease.

60% to 70% attributed to the cost of feeder cattle

The supply or relative herd strength of Feeder Cattle is instrumental to market valuations. Harsh weather may reduce herd strength through limiting the availability of pasture, thus reducing animal weight. A shortage in the supply of Feeder Cattle increases costs, reducing the production and supply of beef.

When formulating accurate cattle market predictions, a producer must be aware of the circumstances that impact the supply-side dynamic. The condition of related agricultural markets, including corn and soybeans, as well as the presence of extreme weather cycles are capable of moving the cattle markets considerably.

Global Demand

In contrast to supply-side concerns that impact the cattle market, demand also plays a vital role in establishing baseline valuations.

Leading beef consumers, such as the U.S., European Union, China and Brazil, have a tremendous influence on global demand levels. Here are several factors that drive consumption and desire for beef products:

Economic outlook

The economic performance of a region or nation is a major contributor to local demand. A considerable increase in personal income typically equates to an increase in the demand of beef over other foods.

Pricing of alternatives

As the prices of chicken, pork and other meat staples rise, the price differential becomes negligible. In turn, demand for beef increases.

A prime example of global demand impacting cattle market predictions, is the 2017 reintroduction of U.S. beef into China. The lifting of the ban opened the world’s largest consumer market to the largest beef exporter. As a result, many analysts issued predictions of Live Cattle prices rallying as much as 20% by year end.

Futures Market Technicals

In addition to the fundamental market drivers related to supply and demand, technical trading levels also periodically influence cattle pricing. A highly public technical level can draw both retail and institutional participation to a perceived inefficient market.

Here are a few prominent market technicals that attract the attention of producers, traders and investors:

Historic highs and lows

Decade and yearly high and low values are used to provide relative context to the cattle market.

Popular moving averages

The 50, 100, and 200 period moving averages are frequently implemented in trade-related strategies.

Momentum indicators

Oscillators such as the Relative Strength Index (RSI) are popular among traders and industry analysts for determining whether the cattle market is overbought or oversold.

The presence of high-profile technical tools or indicators typically attract participation to the marketplace. While fundamentals drive long-term trends in cattle pricing, the location or convergence of market technicals are capable of influencing valuations in the short-term.

Making Your Own Cattle Market Predictions

Being an accurate cattle futures prognosticator is equal parts experience, know-how, and luck. However, a thorough understanding of the fundamental and technical factors behind a market move can be a valuable part of competently addressing the unexpected.

For more information on the current pulse and potential of the cattle market, consult the livestock specialists at Daniels Ag Marketing.

Futures Traders Guide to the WASDE

Filed Under: Ag Marketing

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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