This is a rare-for-me contrarian trading idea. 

The daily bar chart for August live cattle futures (LEQ25) shows that prices last week scored a technically bearish “key reversal” down. Price action so far this week shows a minor bearish pennant pattern has formed. However, it’s my strong bias that the keen resiliency shown in the live cattle futures market over the past few months will trump the near-term bearish technical developments. Look at price action in August live cattle futures from late January to early March, and then from late March to early April. Both time periods seemingly left the cattle market bulls for dead — only to see prices come roaring back and set contract and record highs. 

The live cattle futures market bulls are not dead yet. In fact, the very recent bearish technical developments probably have the speculative cattle futures bulls licking their chops, looking to lure chart-based bears into shorting August live cattle — and then making them pay dearly later on. 

Would-be top pickers in futures markets — especially in major, record-setting bull runs like cattle — usually get their fingers burned. Futures markets like cocoa (CAN25), copper (HGN25), gold (GCM25), and lumber (LBN25), which have all set record high prices that far exceeded previous record highs, remind us that very strong demand and limited supplies can push prices far above what many market watchers ever imagined.

Fundamentally, cash cattle and beef market fundamentals still ring bullish. USDA data over the past few months shows cattle numbers in U.S. feedlots remain at historical lows. Wholesale boxed beef values are presently north of $350.00 a hundredweight for Choice grade and above $340.00 for Select grade — signs of continued strong retailer and consumer demand heading into the peak outdoor grilling season starting Memorial Day weekend. 

Meantime, steep discounts that live cattle futures hold to the cash market (LEY00) are likely to continue supporting futures. USDA Monday reported cash cattle trading last week averaged $226.45, which is up $1.65 from the week prior and the fifth straight week for a record high. Strong consumer and retail demand will likely continue to give feedlot operators the advantage as cash cattle negotiations commence later this week. 

Consider buying a call option on August live cattle futures, with an upside price objective of $225.00, or above. The option expires on August 29.

IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any trades and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.

Here is what the Commodity Futures Trading Commission (CFTC) has said about futures trading (and I agree 100%): 

Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.