Cash cattle trade late last week appears to have been extremely light, which should leave packers extremely short-bought for this week. This is not new for most packers, as they seem to be able to maintain steady procurement levels even though negotiated trade numbers remain light. The lack of active trade last week could spark earlier movement this week as packers try to pull cattle forward through the last half of the month. That being said, most of the activity Monday is likely to be showlist distribution and inventory taking, with bids and asking prices undeveloped. Mixed trade is expected in live and feeder cattle futures early Monday morning following moderate to firm pressure through the end of last week. Traders will continue to focus on the direction of corn prices. Feed prices have the most direct impact on feeder cattle production costs as traders and buyers utilize break-even levels to estimate purchase prices of cattle moving to feedyards. The expectation that cattle supplies will continue to remain strong through the rest of the year is also adding underlying pressure to the entire complex.
Firm underlying pressure remains well rooted in lean hog futures trade following Friday's continued push lower which moved nearby contracts to three-month lows. The sharp, triple-digit market slide adds to the softness in the complex as traders continue to focus on demand uncertainty while domestic production remains active during the summer months. Even with continued production losses in China due to African swine fever, the fact that trade relations with China remain tenuous at best, and with no end in sight for the current trade war, the underlying tone of the market remains under pressure. Lack of support in hog futures remains and is expected to bring about a flurry of follow-through liquidation mixed with short-covering attempts during early week trade. Cash trade is called steady to $1 lower Monday morning with most bids steady. Expected slaughter Monday is 474,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Moderate to firm beef demand is expected to continue through the next few weeks based on consumer buying patterns and improved weather conditions. This is helping build momentum through the complex into the Fourth of July Holiday weekend. | 1) | Softness late last week in cash cattle trade is causing additional underlying concern through the entire beef complex. This is adding to concerns that seasonal highs may have been hit during early June. |
| 2) | Nearby live cattle futures remain well rooted above May support levels at $103 per cwt. The ability to hold these levels through the month of June should spark additional buyer support over the near future. | 2) | Strong price pressure in choice beef cutout prices through the last two weeks is eroding overall demand support for the beef market. Even though select cuts retain strong buyer support, the inability to hold price premiums on higher-priced meat cuts is causing concerns. |
| 3) | Sharp, late-week losses in lean hog futures are creating opportunities for moderate to strong short-covering. This could help add needed momentum, creating underlying support levels. | 3) | Triple-digit losses late last week pushed lean hog futures to three-months lows. The underlying concern about strong domestic production with no evidence of active increases of export trade, especially to China, is causing additional market weakness. |
| 4) | Nearby lean hog futures continue to hold a strong premium to later-month contracts. This is putting increased emphasis on current domestic demand as well as the potential to expand export trade through the upcoming months. | 4) | Softness in traditional summer pork products such as rib cuts and bacon (belly cuts) is creating underlying pressure. The inability to maintain strong price levels in these cuts over the next couple of months is an indicator of weakening overall domestic pork demand. |
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