Cash cattle trade developed in the South Thursday, adding to midweek losses in the North the day previous, with Southern cattle trading at $100 per cwt, $2 to $3 per cwt lower than last week. Northern cattle traded at $167, a $4 per cwt loss from last week, creating general disappointment in the continued market weakness. Although some additional trade is likely to develop sometime Friday, the tone of the market appears to be set unless there is a major unexpected shakeup in futures or boxed beef values. The erosion of boxed beef values the last couple of days has also caused increased underlying concern that further pressure is expected through the rest of the live cattle futures trade. This started to unfold Thursday with nearby contracts quickly eroding as technical pressure moved into the complex and posted contract lows. Although limited focus is expected on short-covering activity, which may bring buyers back to the table, the underlying tone in the market continues to remain weak. Even the positive news about Tyson getting the Holcomb plant up and running by January was not enough to offer price support.
Mixed trade is expected in lean hog futures trade. Although support in most contracts Thursday was based off planned trade talks with China, any optimism seems to be curbed by the reality that a trade deal may not be easily forged given previous talks and still fundamental differences separating the two countries. Though tariffs have had an effect on both countries, it appears that both sides are not at a point they are willing or needing to "tap out" and give into the other's demands. This is likely to create uncertainty surrounding the overall direction and speed of a trade deal even though talks are planned. The need for China to gain access to additional pork supplies given the high prices for pork in China and limited domestic production due to African swine fever could bring additional sales even without a trade deal. Any sales may be viewed as a "good faith" gesture, in order to help bring about additional productivity in the upcoming talks. Hurricane Dorian, is having a significant impact on pork plants in the Southeast with two plants closed Friday, although both plants plan on running full schedules Saturday. Cash bids are expected steady to $1.50 lower with most bids steady to $1 lower. Expected slaughter Friday is at 423,000 head. Saturday runs are expected near 358,000 head.
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The long-term outlook for beef supplies remains slightly bullish with lighter supplies expected in the 1st quarter of 2020, while Tyson's beef plant systems are expected to be back to full capacity by January. This focus is putting a strong $10 to $13 per cwt premium in spring 2020 contract prices.
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Live cattle futures posted contract lows in several nearby contracts Thursday. This sparked additional bearishness across the entire complex, creating additional potential weakness at the end of the week.
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The trade deal with Japan, which is awaiting final approval, continues to remain a long-term bullish factor in securing active beef exports the next few years. Although it is not able to provide short-term relief, the extended long-term impact should not be overlooked.
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Moderate-to-strong pressure is moving back into boxed beef values. The concern is that abundant supplies and higher retail beef prices following last month's rally in wholesale beef prices could add further pressure now that seasonal demand is starting to erode.
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Strong lean hog gains Thursday held on the hope that October trade talks with China will be productive. This would have a significant impact in the pork industry as the need for reasonably priced pork in China is growing due to supply concerns.
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Firm pressure continues to develop in wholesale pork prices and cash hog markets through early September. The focus on abundant market-ready hogs and limited growth in export demand is keeping prices under pressure.
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Traders are looking for export sales to China at the end of August in Friday's Export Sales report. Sales could create strong underlying support and change the long-term direction of the pork complex despite uncertainty surrounding a trade agreement.
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Despite hope that planned trade talks will produce progress and ultimately a trade deal, the fact that we may still be a long ways away from any deal could have an additional bearish impact on prices in the near future.
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