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Broken markets

By Staff | Feb 19, 2016

DURING A FEBRUARY webcast, DTN’s senior markets analyst Darin Newsom said volatility will characterize markets of all types in 2016. A number of factors are feeding into depressed commodity prices, he said.

By KAREN SCHWALLER

“mailto:kschwaller@evertek.net”>kschwaller@evertek.net

The term linked with the livestock markets in the next quarter should be “volatility,” according to Darin Newsom, senior analyst for DTN.

Newsom said the livestock markets – and in particular, the cattle markets – are broken.

“The more broken these markets become – and not just for cattle – the less reliance we can have on seasonality,” he said. “Because of the incredible fluctuation we’re seeing today, we can break away from what we normally see at any given point today.

“The more broken these markets become — and not just for cattle — the less reliance we can have on seasonality.” —Darin Newsom DTN senior analyst

“Be that as it may, we still have to deal with the markets as they are,” he said, adding that he would be describing a more technical view of the markets as opposed to the cash markets. “I’m looking at the long-term monthly charts and intermediate term weekly charts and I can tell you these charts are a mess.

“Trying to discern what type of trend we’re in is next to impossible.”

Live cattle

Newsom said following a long-term downtrend starting in December 2014 has turned sideways between $139 and $126.50 per hundredweight.

He said the next levels come in at $147.35 and $115.55 cwt.

He said the secondary trend for April cattle is up with a target price near $139, and that support could come from noncommercial short-covering.

The seasonal index showed April contracts trending sideways through late March.

“Fundamentally, the April-to-June futures spread is running above the five-year high, reflecting a bullish commercial outlook by commercial traders,” said Newsom. “This doesn’t necessarily agree with recent cattle-on-feed or cattle inventory numbers.”

Feeder cattle

Newsom said the feeder cattle outlook looks to be in a major – long-term – uptrend. He said support is above the long-term low of $143.20 cwt with the upside price target between $165.15 and $174.15.

He said the secondary – intermediate-term – trend for March futures is up.

“The contract should be able to build off the recent test of support between $154.30 and $150.10,” said Newsom. “This could lead to an extended rally into the area of $165.25 and $177.10.”

Newsom said that fundamentally, the March-to-April futures spread, continues to reflect a bullish commercial outlook.

Lean hogs

Newsom said lean hogs show the major – long-term – trend remaining up, adding that the nearby contract is “testing resistance” at $71.05 cwt.

He said it could soon push toward $79.

“Non-commercial buying could continue to support April lean hogs, however, the contract is nearing a secondary overbought situation as it tests resistance near $71.05,” said Newsom. “This could lead to a short-term downtrend early this quarter.”

He said the April contract tends to trend upwards through late March, and that fundamentally, the April-to-June futures spread has gone from bearish to neutral.

Cash corn

Newsom said the major trend remains sideways for cash corn, ranging between $3.23 and $3.65 per bushel.

“For now, cash corn is showing no sign of breaking out of this trend,” he said.

He said while its long-term monthly chart shows cash corn in a continued sideways trend, the secondary weekly chart turned bullish at the end of January.

“However, the market has not generated a long-term buy signal to cover cash needs yet,” Newsom said.

He added the moderate carry in futures spreads continues to reflect a neutral long-term view of supply and demand.

The national average basis shows signs of strengthening through next summer.

Soybean meal

Newsom said trends show soybean meal markets could be nearing an upturn, possibly as soon as the end of February.

“The intermediate-term trend looks to be turning up, with a possible buy signal to move to a new four-week high above $277.20 (per ton), then $274.40,” he said, adding that non-commercial short-covering could spark that rally.

He said the futures market tends to turn up through late April, but fundamentally, the market’s “forward curve” has turned bearish, while futures spreads appear to be trending toward weaker carries.

Newsom said it could hint that the supply and demand outlook may be changing again.

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