This Commodity's Rally to 8-Year Highs was Foreseeable... 3 Years Ago!

Feeder cattle was slated for slaughter in 2020. Instead, prices soared. It's time to sober up to Elliott waves!

by Nico Isaac
Updated: March 07, 2023

This weekend, I had the pleasure of visiting a local North Georgia vineyard for a weekend getaway. On one of the tours, the sommelier asked the visitors where they thought wine -- as a drink -- came from.

The most popular response was, not surprisingly, France, followed in a close second by Italy.

The sommelier nodded and paused before starting, "I'm going to tell you a tale of the origin of wine." He regaled us with this woozy legend about a beautiful Persian princess who, 7000 years ago, lost favor with the mythological king Jamshid.

Overcome with shame, the princess tried to take her own life by drinking the sour juice in a jar filled with spoiled grapes. Within minutes, she fell unconscious in a deep, intoxicating sleep. The next morning, she awoke rejuvenated, elated, and rushed to the king's quarters to share the news of this new elixir she had accidentally discovered.

From then on, the king welcomed the princess back, and decreed that all grapes grown in Persepolis would be used for the purpose of making wine.

This legend is a charming tale of how one's original plans can often be thwarted into something entirely unexpected. Which, in not nearly so eloquent terms, is a story arc that plays out in mainstream financial analysis all the time.

Take, for example, the feeder cattle commodity market. Starting in early 2020, livestock futures stood at levels unseen in a decade. And, according to the popular pundits, beef prices were slated to be a foregone casualty of the global pandemic. In fact, an entirely new word was created to describe the widely expected decline of farm-raised beef prices, i.e., the "Cowvid" Crisis.

Explained one industry report on March 31, 2020:

"The numbers are sobering to look at...This is the kind of thing that will contribute to negative impacts on the industry.

"In downturns, consumers tend to seek products at the lower end of the price scale. Beef, however, doesn't have extensive low-cost product offerings."

Added Reuters on April 6, "Cattle Futures Plunge as Pandemic Roils Markets"

The greater expectation for cattle prices was for them to drink the poison of the pandemic, lay down, and never get back up.

And yet, much like the princess, the very opposite occurred. Cattle prices awoke with renewed vigor and embarked on a sustained rally to 8-year highs this month.

Nowhere in the mainstream Cowvid narrative was there room for a bullish outcome in cattle prices.

So, are we suggesting markets are random, as some other schools of thought believe, that markets just do what they want when they want, rules to be damned?

Not at all. Quite the opposite. See, in early 2020, there was another kind of analysis by which to compare feeder cattle's trend; namely, Elliott wave analysis. And by that measure, the livestock's future wasn't sobering. It was cause for bullish celebration.

Our April 2020 Monthly Commodity Junctures "Monthly Feature" showed a version of this weekly price chart of feeder cattle which identified a completed, multi-year decline since 2017 as wave (a) of a developing corrective ABC pattern -- with a wave (b) rally due next:

From the April 2020 Monthly Commodity Junctures analysis:

"The minimum expectations of a completed five-wave decline have been met. This argues that we do indeed have a tradable low in place. If that's the case, then we have seen a very significant low in the feeder cattle market, one that should last a number of years."

And from there, feeder prices took off running like that woman on the wine tour who saw a bee fly onto her glass of Chardonnay.

Fast forward two years later, and feeder cattle prices had reached another important juncture from an Elliott wave perspective. Our June 2022 Monthly Commodity Junctures revisited the market to set the stage for powerful resumption of the uptrend, shown here:

And once again, feeder cattle began to soar, tapping its highest level in 8 years on March 6. (Source: Tradingview.com)

At the end of the day, no forecasting method is perfect. And not all Elliott wave interpretations turn out to be correct. But if you want to wake up tomorrow to a new kind of forecasting method, one that provides critical price levels to help manage risk of every trade, then perhaps our new, intraday and daily opportunity-focused focused product Commodity Pro Service (formerly Commodity Junctures Services) is the right vintage for you.