Firm pressure through the early part of the week in feeder cattle trade has pulled away from six-week highs, causing traders to readjust positions, with market softness possible in the next couple of trading sessions. The upcoming Cattle on Feed report and semi-annual Cattle Inventory reports may cool optimism, which has moved into the feeder cattle complex over the last month. Live cattle trade is expected to remain mixed in a narrow-to-moderate range early Wednesday morning while the overall tone of the market is still expected to carry a firm undertone. Cash cattle activity is expected to become more active Thursday with bids becoming more evident as the day continues. So far, feedlot managers have held tight to early asking prices of $114 per cwt live and $186 and higher dressed, but this may soften if follow-through pressure develops.
Aggressive underlying support continues to develop in lean hog futures trade following active support, moving August futures to $82 per cwt and setting July highs. The underlying support through the complex is helping to stimulate additional underlying commercial support, while sustaining noncommercial interest, which has still remained active through the last couple of months. A move above $83 per cwt in front month August futures would break through the next short-term resistance levels set one month ago, stimulating potential additional underlying support through the complex. Cash trade is called $1 lower to $1 higher Thursday morning with most bids steady. Expected slaughter Thursday is at 477,000 head.
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Early Cattle on Feed estimates suggest a slight reprieve in larger supply levels than what was seen earlier this spring and summer. This could put more focus on building beef demand and less on the need to aggressively manage cattle and beef supplies over the next six months.
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Firm midweek pressure in feeder cattle trade continues to limit optimism in the entire cattle complex. This could limit active follow-through buying interest through the end of the week.
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Firm cash cattle support during early July is sparking underlying optimism by feeders, which are holding to higher asking prices. This may help to sustain additional cash cattle gains through the end of the week.
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Light-to-moderate pressure redeveloped in beef cutouts midweek, sparking uncertainty about the ability for short-term demand to break out of the current pattern. This may cause increased underlying softness the next couple of days.
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Aggressive futures support in nearby lean hog futures sparked active buying interest in the remaining 2019 contracts. Follow-through support is expected in late-week trade.
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The aggressive market swing higher through the last week in lean hog futures is leaving the complex ripe for a market correction. Although underlying momentum remains firm through the market, a triple-digit loss could quickly develop without significantly changing the firm tone of the complex.
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Renewed optimism is growing through the pork complex surrounding trade talks with China and the potential movement forward in talks as both sides appear to be more eager to get back to the negotiating table.
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Despite recent fundamental and technical support, the fact that the U.S. and China have a long ways to go before reaching a trade agreement is likely to limit upside market potential through the entire lean hog complex as market focus will return to aggressive domestic production levels and ready supply of pork to the market.
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