Could Cattle Make A Comeback?

Jul 14, 2020

Could Cattle Make A Comeback?

Like many other financial markets, the live cattle market has been vulnerable to developments in the battle against the Coronavirus. The spread of COVID-19, in fact, has caused a great amount of concern and anxiety over demand and has driven some markets substantially lower from previous levels.

Today, the front-month live cattle futures contract that expires in August, is slightly lower on the day. The market has recently, however, been on the offensive. The cattle contract made a rapid move from near-term support around the 95 level to over 100. Recent selling has seen the price fall back below the 100 level, however, as the market has struggled to break free from this area to the upside.

The market has been mostly sideways for several weeks now and is likely in need of a fresh catalyst to break out of its trading range. New-month buying may have been a factor in the market’s recent 3-day winning streak, although it is unclear if that buying spree will continue. Like many other commodity markets, live cattle traders and investors may be trying to await any further indications about the spread of the virus pandemic and the health of the U.S. and global economies.

The live cattle market has already retraced about 50% of the declines seen in January, February and March. The question now is whether the bulls have enough in the tank to drive prices higher. An uptrend is now in place on the daily chart, but that trend higher appears to be quite vulnerable to fresh economic news. The next several days or weeks may determine the market’s next overall direction, depending on which way prices break out of the recent trading range.

At work for the cattle market is the economic reopening and a cooperative Federal Reserve. As more bars and restaurants reopen for business, demand for cattle could see a significant shift higher, taking prices up along with it. On the other hand, however, is the threat of additional closures or re-closures. Some states, such as Texas and Florida, have already been forced to again close bars and restaurants due to a rising infection rate. If that trend were to continue, it could keep demand greatly subdued and prices could fall back to or beneath recent lows.

Although cattle are not likely to trade sideways forever, they could potentially remain largely range-bound until more clarity is seen about the global economy and the upcoming U.S. Presidential election.

DISCLAIMER: This document is issued for informational purposes only. This document is not intended, and should not under any circumstances be construed as an offer or solicitation to buy or sell, nor as financial advice or a recommendation in relation to any capital market product. All the information contained herein is based on publicly available information and has been obtained from sources that Straits Financial believes to be reliable and correct at the time of publishing this document. Straits Financial will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, any reliance on such information. Trading commodity futures and options products presents a high degree of risk, and may not be suitable for all investors. Past performance or historical record of futures contracts, derivatives contracts, and commodities is not indicative of the future performance. The information in this document is subject to change without notice.  The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices.