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Cattle Futures Technical Analysis - Cattle Futures Trading: 2018-04-10
Impact of China's retaliatory tariffs on beef prices may be exaggerated
The cost of US beef rose slightly after a massive drop caused by the introduction of increased duties on its imports to China. Probably, market participants have already taken the negative into account. Will the growth of LCATTLE prices continue?
Rising wheat prices, which is used in combined feeds for cattle, may contribute to this tendency. Let us recall that the exports of beef to China resumed in June last year after a 13-year ban amid the “mad cow disease." According to U.S. Meat Export Federation, in the second half of 2017 only 3 thousand tons of beef valued at $31 million were exported from the USA to China. Probably, the new restrictions will not have a noticeable negative impact on the cost due to relatively small amounts of exports. It should be also noted that the massive decrease in live cattle prices in March of the current year was due to the drought in the US. According to U.S. Department of Agriculture (USDA), due to this, the supply of cattle to feedlots in February increased by 7.3% compared to 2017 and reached a 16-year high - 1.817 million heads of cattle. Now, in the US, the factor of drought may reduce its impact. The USDA will publish the next report for March in April 20. It should be noted that the Ministry expects a reduction in the number of cattle in Argentina, which is a positive factor for prices. According to agricultural sources in Argentina, because of the severe drought, the number of cattle could decrease by 1 million heads. Now it is estimated at 53.5 million.
On the daily timeframe, LCATTLE: D1 approached the lower boundary of the wide neutral range, but could not overcome it. The decline slowed down and a number of technical analysis indicators of formed buy signals. The further price increase is possible in case of the publication of a positive report by the US Department of Agriculture on the reduction of cattle heads in feedlots.
- The Parabolic indicator gives a bullish signal.
- The Bollinger bands have strongly widened, which indicates high volatility.
- The RSI indicator is near 50. No divergence.
- The MACD indicator gives a bullish signal.
The bullish momentum may develop in case LCATTLE exceeds the last fractal high at 105.3. This level may serve as an entry point. The initial stop loss may be placed below the last fractal low, the minimum for a year and a half and the Parabolic signal at 96.6. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level at 96.6 without reaching the order at 105.3 we recommend to close the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
| Position | Buy |
| Buy stop | Above 105,3 |
| Stop loss | Below 96,6 |
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