As we move into the month of February, the livestock markets are under pressure to say the least. Fear is the dominate feature to this situation as massive liquidation has taken place in the futures market. This has taken the live cattle, the feeders and the live hogs futures from a premium to a discount in a very short time. This fear is mainly due to the coronavirus that is sweeping China and spreading to other countries. The belief is that world commerce will be greatly affected; which in turn will cause demand for agricultural products for export to greatly slow. This has put most agricultural-related futures markets in a short term oversold condition at the start of a new month.
The cattle market has seen live prices as well as beef cutout prices beginning to slump in the past few weeks. Concern over the international problem of the coronavirus was a major factor in the selling that developed during this period. However, the fact that cash prices began to slump along with the beef cutout slipping lower, helped in assisting the futures weakness in the latter days of January.
The U.S. Department of Agriculture released the bi-annual Cattle Inventory report on Jan. 31, which indicated a slightly lower number of cattle overall in the United States. This was in line with analyst guesses prior to the release of this report and should have little or no effect on the market immediately.
It is quite likely we are seeing a short-term top in prices until the fear subsides in the market. However, we could see a short-term short covering rally develop — relieving the pressure due to the short term oversold condition of the market. There is a good chance we have seen a seasonal high made here in the first quarter of the new year, so producers should monitor market conditions in the weeks ahead.
The hog market has taken the brunt of the selloff since the first of the year and is currently deeply oversold on the futures market. It has gone from a large premium to a discount to cash in six trading days — which is very unusual and extremely fast.
China and its problems would account for many of the concerns in the hog market for this quick descent in prices. This would help explain the rapid drop in the pork cutout which dropped almost $8 in one week in the last week of January.
Because the market is so oversold, a recovery rally is likely in the near term. A cash rally and an improving pork cutout will be the signal that the hog market might settle down and get back to a normal trade with less volatility.