"Shootin' The Bull" Weekly Analysis...
For the week ending April 16, 2021
In my opinion, the live cattle futures market needs a major wave 2 correction to the downside, via the weekly close only, continuation chart. A wave 1 rally from the April of '20 low appears to have run its course. With it perceived that first quarter placements are near record, and elevated numbers to be placed in April, the packing industry is believed to have ample supplies to work with into the Labor Day weekend. The basis is anticipated to remain fairly stable, as there is little need for further enticement of placements. If correct, then June and August are anticipated to be the contract months that make the wave 2 low. I do not know how it will unfold, but at present, it appears that beef is in good demand and cattle are not. Maybe the first two weeks of May could show some strength due to placements months ago, but with the previous basis contracts offered, it seems as if that hole has already been filled. Nonetheless, the current decline is believed the wave A of 2. Whether complete or not, I do not know at this time. Since most of this analysis is done on the weekly, it may take the summer to work June and August down to levels between $108 and $104.00. The $108.00 area is a .382% retracement level and the $104.00 is a 50%, but as well, the low posted of wave 4. The Elliott Wave suggests that upon completion of a wave sequence, the correction of the same magnitude would retrace to near the wave 4 of the lesser magnitude wave. I know this is more crystal ball stuff, but seemingly there isn't much to discuss about the production side of the industry that isn't disparaging.
With the feeder cattle index a representation of nothing but human interaction, it is believed a more telling tale than the futures. The feeder cattle index is believed to have completed a major wave 1 rally much sooner than did the fats. The high tic of the index reading came in August of '20 with the remainder of time spent trading sideways. On March 16th, cattle feeders got busy again and put nearly $10.00 on the index. Some of this gain was disproportionate to regions. Nonetheless, this rally created two different future scenarios. One mild and one butt ugly, but both signal a decline of some magnitude. First, the primary wave count is that wave 1 was completed in August and the wave 2 completed at the March 16th low. The initial price action from the March low becomes an intermediate wave 1 rally to the 4/13 high. Intermediate wave 2 is anticipated to retrace back to approximately $137.00 on the index. From there an intermediate wave 3 of major wave 3 would then be anticipated. At first though, the cattle feeder has to get through the poor feeding margins and get to some shortage of inventory. This is going to be the environment searched for on the wave 2 correction. The alternative wave count suggests that the major wave 1 was made in August of '20 and major wave 2 remains intact. Of major wave 2, the rally from March 16th to April 13th could have been the E wave of a complex B wave of major 2. If correct, then a C wave of major wave 2 would be anticipated to drive feeder cattle prices to approximately $125.00 via the feeder cattle index. I believe that were the drought to be broken and heifer retention sustained, the primary wave count is what I would lean to. If the drought intensifies, then the alternative count would be most likely. You can see the complexity of the situation that cattle feeders today are bleeding capital profusely. Something along the production side is believed going to have to change to help the cattle feeder. I do not anticipate the packing industry to change much of anything at this point. They can only slaughter so many and as best I can tell, they aren't even slaughtering that.
Corn has now doubled in price from the April of '20 low. Most all contract months set new contract highs this week. I anticipate higher prices for grains due to worldwide livestock production, a weak US dollar helping exports, and governments’ continuance of an easy money policy. This has played a role in higher lumber, energies, copper and maybe precious metals soon. Meats have benefited as well. The lower supplies of hogs have helped to propel pork prices higher and a slaughter rate of cattle keeping them backed up and beef moving higher. Bonds pushed to new highs in their wave 4 correction. I viewed this area as one to mitigate risk of further declines in bond prices and rising rates. Inflation is here and rising. The Fed appears complacent with it and is actually encouraging it. I anticipate more of the same.