Live Cattle Futures had limit-down moves on Monday and Tuesday, losing about 7 percent of its value in that rapid decline. The news that rocked the market was a severely damaging fire at a Tyson Fresh Meats plant in Kansas. The plant represents about 5-6 percent of the cattle processing capacity in this country. Needless to say, cattle traders headed for the exits Monday morning.
The negative implications to the futures price of live cattle has to do with the processing of the cattle. The Tyson plant represents a decent portion of the U.S. processing capacity for beef. The Company stated the facility will be shut down indefinitely, but they will eventually rebuild. The plant harvested about 6,000 cattle a day and now they have to transport the cattle to other plants for slaughter. This comes at a time when plants around the country are already operating at capacity. So, the cattle earmarked to be slaughtered at this facility are sort of in limbo and it is unsure where they will go and when they will be processed.
This leaves the demand side of the equation weaker for live cattle prices. Technically, there are too many cattle available for processing and there is some uncertainty in the market with regards to the processing of the homeless cattle. So, it looks like traders took this news very negatively and sold the market fairly heavily.
On a positive note, demand for beef is still fairly good. Eventually this situation will get worked out, but it is hard to tell what prices will do in the foreseeable future. October live cattle prices were lower again on Wednesday, but the deferred months seemed to do progressively better. The June 2020 contract was up about $2 on the day at $105.45.
In my opinion, live cattle futures can be difficult to predict from the fundamental side. Adding a news event like this can complicate matters even further. From my experience, sometimes the livestock markets can have deep declines and then form some type of “V” bottom on the charts. It remains to be seen whether this news event just caused a blip on the longer-term charts or it sets the tone for more negative price action going forward. From a technical perspective, the latest couple days have created a negative chart outlook in my opinion.
Chuck KowalskiFuturesBuzz.com
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