Live cattle futures are expected to open lower once again due to limit losses on Tuesday that stalled trade and left additional sell orders on the table, waiting to be filled. Pressure the last two trading sessions has left the complex oversold on a technical and fundamental level, which may spark aggressive short-covering once the bearish market momentum slows. The sharp losses the last two trading sessions in corn trade should not be overlooked, especially in feeder cattle trade. Feeder cattle attempted to rebound Tuesday morning in deferred futures in reaction to the lower production costs, but until market stability can be established following the recent plummet in live cattle and feeder cattle prices, buyers are going to remain on the sidelines. Expanded trading limits are once again in effect, limiting live cattle moves to $4.50 per cwt, and feeder cattle to $6.75 per cwt. Cash cattle trade remains undeveloped at this point, although packer interest is expected Wednesday. Initial bids and asking prices are likely to be delayed until the price free fall slows. Choice beef cuts posted a record one-day high Tuesday, up $7.74 per cwt. The rally in wholesale beef values is creating significant incentives not only for Tyson, but all other packers to push the envelope at all other plants in order to take advantage of the increased margins available this week.
Spillover pressure from limit-down cattle trade has derailed market support in the lean hog complex this week. This created pressure in nearby contracts with October futures leading the market lower with a $2.50 per cwt loss. This took out previous long-term support levels last week, creating the potential for additional liquidation in the complex. The market remains fundamentally oversold as domestic demand continues to develop through August. This may spark a moderate-to-wide swing higher through the end of the week, but the pressure in surrounding markets is currently keeping buyers on the sidelines. Cash bids are expected $1 lower to $1 higher with most bids steady to firm. Expected slaughter Wednesday is at 477,000 head. Saturday runs are expected at 123,000 head.
| BULL SIDE | BEAR SIDE | ||
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Live cattle futures are oversold following limit losses for two consecutive sessions. Once selling subsides, the potential for an aggressive and strong market rally is likely.
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Weaker market momentum continues, following markets locked in limit losses Tuesday. With no indication of how many sell orders are still waiting to be filled could create increased volatility once again Wednesday.
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Sharp losses in corn trade the past two trading days has significantly reduced production costs. Once feeder cattle futures break away from packer supply concerns and limit losses, the focus on lower production cost is expected to bring buyers back into the complex.
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Tighter packer capacity will not only continue to impact futures trade, but cash markets are likely to be under significant pressure as packers need to gain access to less cattle. The fear that this will continue long term is adding even more weakness to the entire complex.
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Firm cash hog gains Tuesday are expected to indicate that a corner has been turned in cash values, as packers continue to aggressively focus on increased spending through the end of the week in order to gain access to needed numbers.
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October lean hog futures tumbled lower, once again taking out support levels established last week. This created additional technical pressure to the weak hog complex.
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Firm underlying domestic pork demand remains firm as traders continue to focus on fall and winter buying patterns and product needs. This is expected to continue to provide underlying support in most primal cuts through the end of August.
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Despite the bounce higher in cash values Tuesday, the inability to sustain recent support in wholesale pork values is creating concerns that additional short-term pressure may be developing the next couple of weeks.
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