Bullish Cattle on Feed Report sends Cattle Futures Lower

Yes, you read that headline correctly - we do not call it the "Cattle on Fade" report for nothing. Cattle launched out of the session open on the heels of a bullish report indicating fewer cattle in cattle country than the market was originally expecting; however, in spite of the friendly report, futures could not hold their gains made early in the session as sellers began showing up.

Simply put, the supply shortage of cattle is not "new" news. We all have known about it for some time now. It is a given that we are going to be tight on supplies for a while into the future. What is also a given is the fact that many traders are doubting the ability of beef demand to sustain itself given the record high prices for beef. Any of you who do the shopping know full well what I am talking about if you have taken a recent trip to the meat counter.

After plunging earlier this month, cattle regained all of those losses and then some after beef prices continued working higher reaching new all-time highs day after day and surprising the trade. Apparently grocers have been able to move the stuff even after passing on the big jump in wholesale prices to the consumer. However, the market appears to be re-evaluating beef demand given the time of the year and the continued surge higher. At some point the consumer is going to balk at paying these kinds of prices. When they do, traders fear that cattle prices could take a dive.

This uptrend has been surprisingly strong however meaning that the volatility can be expected until one view or the other is confirmed.

Here is a look at the chart to note the price action. The uptrend remains very much intact but today's response to the bullish COF report is a warning sign.

Shifting gears to the grains, and particularly to the beans - Bulls are talking up increasing demand for beans, especially from China for the new marketing year, as reason that prices have fallen far enough for now. Also, the usual ( we get this talk every time, every year without fail ) hot, dry weather for August has some shorts covering positions and waiting and watching to see what the longer range forecasts might show for the upcoming month. Beans are typically made in August so any change to hot, dry weather will bring some weather premium back into the beans although my view is that they already have a weather premium in them at current levels. We'll see.

What is really at work here is the lack of aggressive selling the past few sessions, unlike that which we have seen over the last few weeks more than anything. Some consolidation is therefore due while the market adjusts to the new and lower price level to build some sort of base. Traders will be closely watching the weekly conditions report on Mondays as we move forward to see if there is indeed any weather-related stress for the beans or if it is just the usual chatter stirred up by the bulls to try to salvage what has been a horrible last few weeks for them. In actuality, some heat for the beans will be beneficial provided that we do not see any lack of rainfall extended out beyond more than a week or so.

My view is that foreign buyers of US beans are taking some JUST IN CASE, the forecasts change for the worst. They want to get some needs covered. We will be approaching harvest in the Southern part of the US very soon and that is going to bring some new crop supplies into the pipeline. If these foreign buyers get the sense that any weather scares are overblown, they will back away from the market and wait for lower prices.

Corn is being dragged higher by the beans if you want my honest opinion although bulls are talking increasing demand at these lower prices also. Short covering among speculators is behind today's gains.

Not much to say on gold - even with the slightly weaker dollar it is struggling to do much of anything. As said in previous posts - gold is boring right now and a waste of time until it decides to make a strong move in one direction or the other. For the time being it is just being run back and forth with no clear direction outside of the shortest of term charts.