Schwieterman: Cattle markets to see breaks next week

The grain markets started the week like they finished the last, which was under pressure. There was simply a lack of fresh bullish news and plenty of disappointment in the lack of follow through buying after the October supply and demand report. Plus many traders have continued to focus on ideas that USDA would increase the soybean production estimate in the November supply and demand report. By mid-week the market had found some support and the news began to improve. By the end of the week traders were talking about rising corn and wheat basis levels around the world, the Ukrainian ban on wheat exports, large wheat sales to unknown destinations and the probability that corn importers would soon turn to the US for supplies.

The charts are giving some hope to the bulls after this week’s gains. The big test for the December corn will come at the 50-day moving average, which will come in around $7.75 Monday, which is just below the post crop report high of $7.76. A close above $7.76 would begin to change the complexion of the market and encourage speculative buying by both small traders and large funds.

The December KW is already above the 50-day moving average, but it doesn’t mean too much in a market that has been range bound since July. A move up to the $9.25 - $9.30 area is very likely in the short run, but after that it will take more good sales news to get the market out of the trading range. After such a long sideways move a breakout to the upside would project a move up towards $12.00, so be prepared for a big move if we start to see consistent export sales.

The January soybeans hadn’t seen two consecutive closes above the 9-day moving average in over a month, so Thursday and Friday’s action was significant from that standpoint. After a $3.00 break the bean market is ready for a short covering rally. Export demand is still at an unsustainable pace so there is good fundamental reason for a rally as well. The big fear is still the possibility of increased production, but I still maintain that we will use all we produce.

Other news to pay attention to is the stock market is sitting on multi-month trend line support. If that fails it could be bad for all the markets. The other thing to watch is the Dollar Index, which is back to testing the lows again. A new low for the year could liven up the export market and the fear of inflation.

The cattle on feed report was friendly with 97% on feed, only 81% placed, and 88% marketed. The number of cattle place is the 2nd lowest for September in the data series that started in 1992 and with placements below year ago levels for 4 consecutive months, one can begin to see the potential for tight supplies after the first of the year.

On the charts, the December live cattle made one close above the 50-day moving average and then failed on Friday to hold gains. I like to see two consecutive closes above the 50-day moving average to confirm that the cattle market is ready to move higher and we didn’t get that. I would look for a corrective break next week since the market is overbought, but if we get any indication that cash cattle trade will be at $129 or better, the live cattle futures should post solid gains.

The feeder cattle market bottomed last week and traders should look to buy breaks. I think we  will get a break as we start the week, but a move to the $147 - $147.50 area would be a great opportunity to own the November feeder cattle.

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