Cash cattle trade is going back to the drawing board following light trade, which steadily trickled into the market during the last half of the week last week. Monday's activity is expected to be limited to showlist distribution and inventory taking with mixed direction expected in early week futures trade as well as underlying outside market direction. Futures are expected to remain weak following the triple-digit losses Friday and potential follow-through liquidation in all cattle trade. Despite the firm pullback in prices the last two weeks, live cattle and feeder cattle trade still remain in the top half of the trading range, which could further entrench a sideways range and keep any technical market shifts limited. Outside market direction will likely play a significant role in feeder cattle trade through the first half of the week as traders focus on production costs associated with feed prices, as well as overall economic direction through the last half of the year.
Strong triple-digit losses, which left December and February futures limit lower Friday afternoon, is sparking additional bearishness through the complex early in the week. The ability for lean hog futures to aggressively break through long-term support levels last week is causing significant concern in the complex. Due to the limit losses Friday, expanded trading limits will be available Monday, allowing prices to move $4.50 per cwt before being halted. This may bring additional liquidation to the complex, although at current prices, short-covering activity is expected to become more enticing as there is becoming less and less downside market risk due to current demand and already subdued price levels. Cash bids are expected $1 to $2 lower with most bids $1. Expected slaughter Monday is at 453,000 head.
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The highly publicized agreement on Friday focusing on increased beef trade to the European Union is expected to help create some underlying demand support in the near future. This could help to stimulate additional underlying support in the complex through the end of the year.
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Active pressure in feeder cattle trade has moved prices to one month lows as continued pressure develops early August. This has the potential to spark additional liquidation the next couple of weeks with limited technical stops developing in the current range.
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Beef values have firmed the last couple of trading days, as increased focus is starting to move to the upcoming Labor Day weekend and end-of-summer grilling activity. This may spark some underlying long-term support to the complex.
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Limited cash market support is expected to develop early in the week with current pressure in futures trade limited by lackluster beef values during early August. Continued cash cattle weakness may limit the upside potential leading into Labor Day, less than a month away.
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Lean hog futures have been oversold the last two weeks, creating the potential for a strong market rebound over the near future. With October contracts falling over $16 per cwt without a market correction, the potential for active short-covering interest moving into the complex is significant.
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Expanded trading limits available Monday opens the door to additional widespread liquidation. Technical market stops have already been shattered last week, with October futures trading at eight-month lows, with downside market momentum still developing.
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Despite the current pressure in the market, global demand for pork continues to remain strong given increased losses due to African swine fever, and the world's growing demand for pork. This is expected to help build longer-term support despite current market direction.
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More focus on the increased tariff levels on China and potential retaliation is expected to put even more tension on ag products and pork trade in general. As the relations between the two countries remain volatile, hog prices are likely to remain under pressure.
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