Oversold cattle market to see a bounce or consolidation, analyst says
New sellers may wait for recovery bounce, as coronavirus cases rise.
With a surge higher in coronavirus cases in the U.S. and Europe, traders are beginning to expect a significant short-term drop in demand.
Restaurant and catering demand were already weak, and the potential for further lockdowns for restaurants and bars will limit demand even more. The USDA boxed beef cutout yesterday closed $1.13 lower at $206.70. This was down from $210.60 the previous week and was the lowest the cutout had been since August 7.
December cattle opened higher, yesterday, and traded all the way up to $105.35 early in the session, but they closed at $104.05. That rally is unlikely to alleviate the extremely oversold technical condition, but it was a start.
The surge in virus cases across the globe, especially in the U.S. is seen as negative for beef demand. Cash live cattle traded in very low volume again on Tuesday, with 172 head in Nebraska at $103, down from an average price of $104.59 last week. The USDA estimated cattle slaughter came in at 117,000 head, yesterday. This brings the total for the week, so far, to 232,000 head, down from 239,000 last week, but up from 229,000 a year ago.
The market may begin to correct the oversold condition and see either a bounce or a consolidation pattern. Resistance for December cattle is up at $106.62, with support at $103.75 and $102.52. April cattle support comes in at $109.10, with $112.42 as initial resistance. Keep $107.80 as next downside target once the oversold condition is alleviated.
Short-term demand factors turning more negative, may pressure.
The hog market is attempting to find a short-term floor, but the bearish demand tone continues to bring selling pressure. Expanding virus cases around the world could be negative for demand, and pork values are beginning to see a seasonal decline.
The USDA pork cutout, released after the close yesterday, came in at $87.82, down $2.88 from $90.75 Monday and down from $96.15 the previous week. This was the lowest the cutout had been since September 18.
The December hog futures contract opened higher and traded sharply higher early in the session, yesterday, only to close lower on the day. The market closed nearly 200 points below the early highs. It took out the 50% retracement of the October 19-October 26 break before the selloff, which is a bearish technical development.
The April hog futures contract managed to take out its first key resistance at $71.20 before closing back under the 50-day moving average. The CME lean index as of Oct 23 was $78.17, down from $78.54 the previous session and down from $78.27 a week before. The USDA estimated hog slaughter came in at 492,000 head yesterday. This brings the total for the week so far to 979,000 head, up from 965,000 last week but down from 983,000 a year ago.
The market seems too oversold to expect an immediate resumption of the downtrend. Demand factors remain negative, and cash prices are beginning to weaken. Resistance for April hogs comes in at $71.20 and $71.97, with $69.50 and $68.67 support. December hog resistance is seen at $69.92, with support at $66.67 and $65.30.
For daily updates on cattle, hogs, corn, wheat and the soy complex, visit https://www.hightowerreport.com.
*** This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. Any information or recommendation contained herein: (i) is not based on, or tailored to, the commodity interest or cash market positions or other circumstances or characterizations of particular investors or traders; (ii) is not customized or personalized for any such investor or trader; and (iii) does not take into consideration, among other things, risk tolerance, net worth, or available risk capital. Any use or reliance upon the information or recommendations is at the sole discretion and election of the subscriber. The risk of loss in trading futures contracts or commodity options can be substantial, and traders should carefully consider the inherent risks of such trading in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of The Hightower Report is strictly prohibited.