By Cassie Fish, http://cassandrafish.com
Fear runs rampant as the coronavirus spreads to Italy and South Korea, sending the Dow down over 900 points along with global equity markets and the majority of commodity markets. CME cattle futures are caught up in the wave of selling, gapping lower to new lows.
As Rich Feltes, RJO grain market commentator said in his letter today, “Traders who initially dismissed or underestimated coronavirus impact are belatedly scrambling to adjust. We would typically note that a correction is imminent as news could hardly be more negative than today. However, the full extent of PRC/global GDP slowdown is, as yet, impossible to quantify while the ebb and flow of coronavirus news is consistently unpredictable.”
Managed Funds Are In Control
Managed funds have followed up their exodus of longs in late January and early February with adding to shorts. As of last Tuesday’s close, managed fund shorts increased 6,345 contracts, making them the most short since October 29. Managed funds are still net long, though they are the least net long since October 1. Managed funds got very short after the Finney County fire and were their shortest September 3, 6 days before the market bottomed. So there is room for them to add on the break and certainly very few buyers as the coronavirus spreads.
The market is not oversold either. Apr and Jun LC gapped below the gap that had been left on the way up last September. It is a take-no-prisoners, free fall of a break.
Fundamentals Take a Back Seat
Last week’s slaughter was 628k head, larger than most expected and 47k head over a year ago. This week’s slaughter estimate is 630k head which would be 21k head over a year ago. Friday’s USDA Cattle-on-Feed report was neutral to friendly as placements came in at 99 percent, 3 percent under the average estimate of 102 percent. The industry placed only 24k more cattle than it marketed. February placements are expected to be under a year ago also. And no surprise, marketings were 1 percent above a year ago with the same number of kill days.
Lower futures have motivated some Iowa cattle feeders to sell cattle at $116 today, $2-3 lower than last week, and $187 dressed, $3 lower. If lower futures persist, this week’s cash trade is expected to be more widely established lower than last week’s $119.71 average. A widely viewed showlist of this week’s offerings were up in Texas and Kansas and down in Nebraska.
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