FCATTLE Technical Analysis - FCATTLE Trading: 2015-10-06

Will the price of feeder cattle continue falling as the beef market rebalances?

Consumers in US have started buying less beef after beef prices reached record highs. Feeder cattle prices fell over 12% last month. Will the trend continue?

Feeder cattle are calves that have been raised to a weight of 600-800 pounds for sending to feedlots to be fattened before they are slaughtered for beef production. Beef is the most produced animal protein (by value) in the world and global production in 2013 was 58.5 billion tonnes. While United States ranks the fifth in the world for cattle inventory after India, Brazil, China and European Union, it is the largest producer of beef in the world followed by Brazil and the European Union. Beef prices had been rising since the beginning of 2015 but started falling recently as consumers are buying less beef at recent record prices. According to US Department of Agriculture report, US beef production is projected to decline in 2015 compared to 2014 as US beef exports are expected to be constrained by strong US dollar and high US beef prices, whereas imports from major suppliers are expected to remain strong for 2015 due to wide spreads between US and exporter prices.

The price of feeder cattle is below the 200-day moving average on daily timeframe and has been falling inside a channel for almost a month after it started trading with downward bias since the end of June. The Parabolic indicator gives a sell signal. The Donchian channel has also sloped downward. The RSI-Bars oscillator has entered the oversold zone, which doesn’t mean the price cannot continue falling. We believe the bearish momentum will continue after the price closes below the lower Donchian channel and a pending order to sell can be placed below the lower bound of Donchian channel at 173.33. The stop loss can be placed above previous Parabolic signal at 179.724. After placing the order, the stop loss is to be moved following Parabolic signals. If the price meets the stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not taken into account.