The Answer to Where Commodities Are Headed Depends on Asking the Right Questions

Back in 2020, live cattle prices looked to be on the pandemic butcher block. But then, things took a very different turn.

by Nico Isaac
Updated: January 18, 2023

One of my family's favorite ways to pass the time on long road trips is to play "20 Questions." (Millennials, this isn't a video game or app. It's an old-fashioned form of entertainment in which words come out of one person's mouth and into the ears of another person. For fun. I know!)

Without fail, the game would go as follows: My sister and I teamed up to ask the questions while our brother thought of the secret object. Before he could say go, she and I would unload a shower of questions like a high-powered word rifle:

"Is it____ short, fat, colorful, alive, imaginary, soft, spikey, stinky, scaly, stuffed, solid, flat, round, cold-blooded, warm-blooded, bloodless, bigger than a breadbox, edible, poisonous?" "Is it on the road right now? Did we just pass it? Is it in the car? Is it you?"

And on, and on, she and I would burn through our 20 questions within 2 minutes never coming close to guessing what the mystery object was. (The last time, it was a kangaroo.)

Then, it was our brother's turn to ask the questions, while my sister and I thought of the mystery object. Controlled and focused, he would deliberate slowly, taking 20 minutes between each inquiry.

"Is it sharp?" (20 minutes) "Is it reflexive?" (20 minutes) "Is it shiny?"

And then, just three questions in, he'd posit: "Is it a mirror?" -- and he would be correct.

This is all to say, in the world of finance, there is also a right and wrong way to ask questions about where the market's you follow will be trending.

Since before the invention of "20 Questions," investors have been taught that the clues to price trends are found outside markets, within the backdrop of "fundamentals." For example: What are the weather patterns predicted for the coming week? Is it set to bring more rainfall, cold, heat than normal? What are the crop conditions? What are the trade relations like between producers and purchasers? And so on.

But like for my sister and I, this set of endless variables rarely leads to the answer investors are looking for: Namely, where the next near-, or long-term opportunity lies.

Take, for example, the live cattle market. Starting in early 2020, the US livestock market was 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: the "Cowvid" Crisis. (Jan. 15, 2021 HistoryColoroda.org)

These 2020 news items from the time feed the bearish flames:

• "Live Cattle Futures Plunge as Pandemic Roils Markets" (April 6 Reuters)
• "US Cattle Futures Hit 10-Year Lows as Coronavirus Stokes Demand Uncertainty" (March 17 Farming Independent)
• "Coronavirus Sends Crop and Livestock Prices into a Tailspin" (April 7 FB.org)

One after another, the questions about cattle's "fundamental" conditions seemed to lead to an obvious conclusion: The pandemic was the Black Swan event of a lifetime, and cattle's future was bearish.

And yet, that conclusion was wrong: After bottoming in May 2020, live cattle prices launched a powerful rally.

Isn't this proof that markets, are, in fact random, as so many investors puzzled by similar occurrences believe?

Not at all. It's proof that the mainstream questions about market "fundamentals" do not illuminate price trends. Investor psychology, which unfolds as Elliott wave patterns directly on price charts themselves, does.

Here, we go back to our June 2020 Monthly Commodity Junctures, where we posted this weekly price chart of live cattle. There, the Elliott wave picture called for prices to embark on a powerful, five-wave rally in not just months but years ahead.

And, this next chart captures cattle's advance to 7-year highs in December 2022.

On January 12, one industry report asked the million-dollar question: "When Will Cattle Prices Find their Top?" This was grist for the ole familiar "fundamental" questions mill:

• "Can demand remain strong?"
• "Will the 'friendly fundamentals'" continue?
• "Will drought conditions" persist?

But again, the correct question would be: What does the Elliott wave pattern of investor psychology indicate for live cattle's future?

The answer comes straight from the mouth of our newest product, Commodity Pro Service. There, our daily analysis presents detailed text and video analysis of whether one more new high is needed before we see a peak in cattle. And Commodity Pro Service's intraday charts and analysis paint the way forward on an hourly time frame.