Cash cattle activity is expected to remain sluggish early in the week following light-to-moderate trade that developed Friday. Cash cattle prices ended last week generally $1 per cwt higher in the South with most cattle selling at $106 per cwt, and $4.50 per cwt higher than last week's average at $175 dressed in the North. Showlist distribution and inventory taking is expected to be the main focus across the cash markets with trade likely to be pushed off until midweek or later. With the upcoming holiday weekend, it is likely that both sides will desire to wrap things up before late Friday afternoon. Friday's Cattle on Feed report is expected to be viewed slightly bullish with generally steady cattle on feed numbers of steady with last year levels and slightly under pre-report estimates. Placements were 2% lower than last year, and well below expected numbers. Cattle marketed came in above pre-report estimates, which should help to limit overall market pressure. But it is likely that any report news or potential support from recent beef values will be quickly washed away given the expansion of the trade war on China. The announcement early Friday that China will add tariffs to all remaining imports and increase tariffs already put into place will impact beef products. Late Friday President Trump announced increased tariff levels on all Chinese imports, sparking additional tensions that may keep the cattle complex under significant pressure in the near future.
Hog futures are expected to remain bearish following limit-loss trade Friday. Continued weakness in wholesale pork values and cash markets is being matched with additional trade war concerns as Friday's escalation of tariff announcements will likely spark additional pressure in the hog complex. The actual amount of tariffs placed on pork or other ag products seems to generally be the sideline to the story, as the main focus is the unrelenting tone that China will buy pork and other ag products from the U.S as a last resort. The announcements late Friday that Trump will increase tariffs on imports from China in reaction to China's announcement is not expected to be viewed positively by traders. With expanded trading limits available, lean hog futures have limited support following the swift move through $62 per cwt and below $60 per cwt on Friday. There still remains the next level of price support near $55 per cwt, but a move below that level in October and December contracts could spark additional strong pressure. Cash bids are expected steady to $2 lower with most bids $1 lower. Expected slaughter Monday remains near 472,000 head.
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Continued strong beef values point to underlying long-term market support based on strong domestic demand and active continued beef exports to our normal trade partners.
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Sharp losses were seen late last week based on underlying concerns of trade direction and rising tensions with China. Feeder cattle futures continue to be most impacted with potential additional losses early in the week.
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Feeder cattle placements fell 2% from year-ago levels. This is not only below the market estimate but well below the expected range of estimates. Tightening cattle supplies are expected to be a long-term supportive move to the cattle complex.
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Despite light-to-moderate gains in cash cattle trade last week, the inability to follow the aggressive gains in boxed beef values is expected to create additional underlying pressure in the live cattle complex.
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Domestic demand remains generally stable with cash hog prices holding a significant premium to the lean hog complex. This indicates the potential for cash markets to limit long-term moves through the lean hog complex.
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Limit losses in lean hog trade Friday has opened the door for expanded trading limits in an already weak market structure. This could allow for active pressure in all markets, breaking through additional support levels.
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Lean hog futures remain oversold given the sharp pressure over the last week. This could create a sharp market correction following the emotional pressure sweeping through the complex.
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The increased tariff levels announced Friday between China and the U.S. will continue to dash any hopes of pork sales to China despite their need for product. This will continue to spark additional long-term concerns in the pork complex until a trade deal is reached, which right now, looks unlikely anytime soon.
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