February live cattle futures were limit down (-$6.75/hwt) on Monday, closing at $180.975/hwt. This move was a reaction to a bearish Cattle on Feed report the previous Friday afternoon that surprised analysts and traders, with placements shown to be 106 percent of last year’s placements for the month of September, putting the total head on feed at 11.6 million head, the second-highest inventory for the month of October going back to 1996 when the series began. The high placement figure left analysts scratching their heads, as the cattle herd has been contracting for the last two years due to extreme weather and drought. According to the numbers there is still liquidation taking place as heifers and heifer calves accounted for 4.64 million head, up one percent from last year. It is both possible and logical to come away from this week’s action with two different views. Prior to last week the cattle market had been in a clear uptrend for two years or more, with well-defined trend lines where dips have been bought by bullish traders. After this week the trend has clearly shifted in the short term to the downside and the mindset will shift for some with the idea that rallies should now be sold, even though heifer retention numbers would indicate total herd supplies have not yet crossed over from contracting to increasing.
Stock Indices Lower
Stock indices were all lower this week with tech stocks leading the charge. The Nasdaq was down 3.5 percent at one point during the week and is now down more than 10 percent from its highs of the year, with the Dow and S&P in similar shape.
Crude Oil Sinks
Crude oil futures were also lower on the week, despite continued concerns about conflict in the Middle East spreading beyond Israel’s borders. December WTI crude oil futures were five percent lower on the week Friday morning reaching $83.50/brl.
The path forward for markets is never known, but a clear fork in the road has appeared in the last two weeks, and investors that typically follow the well-worn path may be considering the road less traveled by, and that could make all the difference.
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