Aggressive follow-through liquidation late Tuesday in live cattle futures sparked the development of light cash cattle trade. The eroding market structure gave the opportunity for packers to sweep in with lower bids. The recent tumble in futures trade caused fear in many feedlot managers, and prices later in the week could see additional sharp losses. Although it is expected that some additional trade will likely be done before the end of the week, prices fell to $187 dressed in the North, a $3 per cwt loss from last week's average. Sales in the South developed $5 per cwt lower at $115 per cwt. Unless a major correction is seen in live cattle futures the next couple of days, these price levels are likely to set the tone for weekly cash cattle prices. Futures trade is expected mixed during early trade. Although a strong underlying weak tone remains evident, aggressive selling across the live cattle complex has broken through short-term support levels and will likely attract moderate buyer support in order to cover short positions. Outside market direction is expected to play a significant role in the direction and activity level in cattle trade Wednesday, as the late day tumble in stock markets Tuesday pulled cattle markets away from the mixed price moves early in the session. Similar patterns are likely in midweek trade with buyers likely to stick their toes in the water, looking for an opportunity to buy at these levels. But if widespread liquidation continues in outside markets, any early market support could quickly erode. Continued global concerns of the spread of coronavirus continues to leave markets weak even though the market remains in an oversold status. Wednesday slaughter is expected near 121,000 head.
The lean hog futures complex still remains generally weak but is fairing the widespread market liquidation much better than most other markets over the past couple of days. The main reason for this is that because so much focus in the lean hog and pork markets has been squarely focused on China and the potential or lost potential demand growth in the country, traders feel that a "coronavirus correction" in other markets was already evident in lean hog trade during January. This does not mean that additional strong losses may develop in lean hog futures, especially as the fear and concern of the virus spreads to the U.S. But it is helping to break the weaker cycle in the entire livestock complex, at least for now. The underlying weakness in the complex is still expected midweek, but prices are likely to remain mixed during morning trade. Cash hog prices are called $1 lower to $1 higher with most bids expected steady. Slaughter Wednesday is expected at 495,000 head. Saturday runs are expected at 90,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | An oversold market structure remains in live cattle and feeder cattle trade. This would likely create light-to-moderate price support in the near future if outside markets start to stabilize. | 1) | Widespread technical liquidation through cattle trade the last two days has eroded all recent support in the market. Live cattle trade is now focusing on maintaining support levels last seen last September. This could limit additional buying through the end of the month. |
| 2) | The majority of beef production in the U.S. is dependent on domestic demand. This will help to insulate the beef market from a portion of the global economic challenges that is causing so much fear in all markets through the week. | 2) | The announcement by CDC Tuesday that coronavirus in the U.S is no longer a question of whether a pandemic will happen, but when, continues to add to the urgency of the virus, and the local impact it may have on domestic beef demand and the economy. |
| 3) | Lean hog futures continue to test support levels following mixed price moves within a narrow range Tuesday. The ability to spark additional technical buyer support midweek could quickly push prices moderately higher through the end of the month. | 3) | The lack of support in the stock market created widespread concerns not only for meat markets but all consumable products. The Dow Jones closed down another 800 points Tuesday, making the two day market slide near 2,000 points lower. |
| 4) | Strong gains redeveloped in cash hog prices Tuesday, helping to continue the focus on packers trying to fill needed plant space as they search for market-ready hogs through the end of February. | 4) | Pork values eroded following the continued underlying pressure through the complex. The weekly market wide pressure has also taken most of the emphasis off of potential February sales of pork to China, which was expected to be closely watched this week. |
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