Limited cash market direction is expected Tuesday with bids and asking prices likely to remain unavailable at least through the first half of the day. Trade will likely be delayed until midweek or later, but the bearishness in futures could spark trade if weakness continues the next couple of weeks. Markets remain at a significant discount without a fundamental basis for the pressure in the complex. If further losses develop in the next couple of weeks, feeders may cut losses in response to further cash market pressure. Futures trade is expected mixed in a narrow-to-moderate range, but this does not overshadow the bearish technical signal in nearby contracts as October futures slipped to $94.20 per cwt, and broke through long-term support levels of $94.45 in late day trade Monday. This sets the next support level near $90 per cwt, limiting short-term market optimism in the complex.
Continued aggressive pressure developed late Monday in nearby lean hog futures. Despite trading within a moderately mixed trading range through most of the session, aggressive triple-digit losses flooded nearby contracts, sending additional bearish signals in the complex. Nearby lean hog futures remain within the current trading range, limiting bearish technical signals at this point, but prices continue to inch closer to long-term lows set in August. December lean hog futures still remain over $1 per cwt above contracts lows set last month, but the move below $60 per cwt in late trade Monday acted as a physiological market signal with market closing at $59.95. If price levels remain in the lower end of trade ranges, weakness will develop in cash hog and pork value prices, which could bring buyers into the market. Although trade issues continue to hover over the market like a dark cloud, the expectation that China will continue to need to purchase pork, and large amounts of pork for an extended period of time, should limit further aggressive market pressure in the lean hog complex. Cash bids are expected $1 to $2 lower with most bids $1 lower. Expected slaughter Tuesday is at 483,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Fundamental factors would suggest the continued pressure in live cattle trade is leaving the market oversold, with moderate-to-firm upside potential expected.
| 1) |
October live cattle futures broke through long-term support, moving to the lowest price level in spot month futures since 2010. This creates uncertainty in the complex and lowers the next price support level to near $90 per cwt.
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| 2) |
Strong price premiums during the first half of 2020 suggest that if cattle markets can get through the next couple of months, tighter supplies and renewed domestic and export demand will help to create solid buying support through the cattle complex during late 2019 or early 2020.
| 2) |
Lack of support in futures trade is likely to spark additional weakness in cash cattle trade through the week. Despite the continued strength in wholesale beef values and aggressive packer margins, cash markets continue to be impacted by eroding futures values.
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| 3) |
The growing world need for pork due to continued production losses and outbreaks of African swine fever cannot be overlooked. This will continue to support long-term demand growth for the hog industry.
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Early-week pressure in pork cutout values was another blow to the entire hog complex as eroding cutout values, especially rib and belly cuts continue to find limited support through early fall months.
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| 4) |
Lean hog futures remain oversold, with aggressive losses over the last week creating the potential for widespread buying in nearby futures. If market prices can stabilize, traders would step back into the market.
| 4) |
Aggressive losses in nearby futures developed with December contracts falling $5.52 per cwt over the last two trading sessions. This moved prices below $60 per cwt late Monday afternoon. Although this price level is not technically significant, the emotional toll of breaking through this threshold will put pressure on the entire market.
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