February live cattle futures finally put in a
positive close after losses the previous four days. April and later
contracts extended the gains from the previous day. There is
anticipation that higher prices will again unfold Friday, but traders
may not be too excited about covering short positions or establishing
long positions just yet. Cash cattle trading $3.00 lower this week does
not make one feel warm and fuzzy. More will be required to turn the
trend higher than just a bounce due to an oversold market and the
three-day weekend ahead. Feeder cattle led the charge Thursday, posting
triple-digit gains with futures seemingly building a base. Futures have a
long way to go to regain the losses realized in the last half of
January due to the coronavirus outbreak. Lean hogs were able to post
slight gains likely on spillover support from cattle and a three-day
weekend. Some support might stem from China cutting tariff rates in half
Friday on $75 billion of U.S. products. The hog industry has long
awaited a surge in pork demand from China, but there is no guarantee
this tariff cut will generate anything substantial. Traders may
short-cover Saturday just in case something develops over the weekend.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Finally, a bounce in futures could
indicate price has gone down too far, too fast and a retracement is in
order. Traders may cover short positions.
|
1) | Two days of higher closes for cattle does not indicate the trend has changed. Lower cash again this week does not bode well for continued higher futures. |
| 2) |
Feeder cattle sales $2.00 to $3.00 higher Thursday could be a catalyst that might provide support under the live cattle complex.
|
2) | Solid support has not yet been established, leaving the market vulnerable for further weakness. |
| 3) |
China cutting tariffs in half on $75
billion of U.S. goods may work, which could open the way for increased
demand that was anticipated since the signing of the phase-one tariff
agreement.
|
3) |
Increased demand for pork from China
is possible as a result of tariff cuts, but not yet certain. The market
has been disappointed many times over the lack of exports.
|
| 4) | Tariffs will be reduced in the afternoon Friday likely after the livestock markets close. A three-day weekend leaves plenty of time for things to happen, prompting traders to reduce some of their exposure by covering short positions. | 4) |
The recent trend of lower highs and
lower lows in the hog complex does not provide technical optimism in the
market with a retest of support possible.
|
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| #completecalfcare |
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