Cash cattle trade has been generally limited at this point with a few deals reported on a live basis in Nebraska and Kansas at $109 per cwt. This is generally $1 lower in the North and $1 higher in the South. With the Cargill plant back online this week, it is likely that a light-to-moderate boost will be seen in Southern Live cash cattle prices based more on taking out the discount put into the market last week than a strong underlying shift higher. The midweek futures rally and continued support in beef values during the week would suggest that feeders would become even more reluctant to accept anything steady to lower, but the increased offerings of cattle on showlists this week may limit packer interest. Follow-through buyer support is likely to redevelop as traders attempt to expand the strong market shift on Wednesday. With December futures posting technical support midweek, and moving above summer highs of $114.35 in December contracts, traders are likely to test the upside range the next couple of days. December futures are now trading at the highest price levels since May 1, with prices nearly $2.50 per cwt higher than year-ago levels. The potential to hold and expand these gains through the end of the week will likely set market direction through the end of October. Thursday slaughter runs are expected at 117,000 head.
Lean hog futures have continued to move in the opposite direction of the live cattle futures with strong underlying pressure holding in most contracts. Although December futures were able to etch out a narrow gain in late day trade, the triple-digit losses in other nearby contracts continues to bring the reality back to aggressive supply issues facing the hog complex. These supplies are not expected to quickly change during early 2020, putting even more emphasis on export demand, and the ability to move even more product to China. Traders will focus on the morning Export Sales report. Although firm sales the past two weeks to China may create some security going into the report, traders appear to be looking for additional support from China exports before getting too excited about buying the hog complex. February futures have broken below the 40-day moving average following Wednesday's market shift lower, which could spark concerns of retesting support levels through the month of November. Cash hog values are expected to be steady to $1 per cwt lower, with most bids expected 50 cents lower. Expected slaughter Thursday is at 489,000 head. Saturday runs are expected at 260,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Live cattle futures broke through resistance levels near $114.50 per cwt in December contracts Wednesday. This is expected to spark additional underlying support through the end of the week as traders continue to focus on continued technical buyer support through all nearby contracts.
| 1) |
The inability to spark increased cash cattle trade during the week given the aggressive run in futures trade and strong gains in boxed beef values will be viewed as fundamentally bearish and could further impact the complex through the end of the month.
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| 2) |
Strong gains in futures and beef values is expected to strengthen feedlot managers resolve at the end of the week as they focus on higher cash cattle prices, likely holding out until late in the week before inking deals.
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Average estimates for total Cattle on Feed numbers are at 98.7% of year-ago levels. The drop in overall cattle supplies would confirm the expected trend that the tighter supply trend is starting and likely to continue through early 2020.
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The weekly Export Sales report will be released Thursday morning. Traders are looking for increased sales to China last week, helping to confirm an increased trend over the previous two weeks.
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Pressure in pork cutout values indicate continued supply issues in the complex, which is expected to continue through the near term. This may add increased underlying pressure without active continued buying from China.
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| 4) |
African swine fever is not going away anytime soon with major pork production problems not only in China, but most Asian nations, including Vietnam and South Korea. This remains bullish for pork exports to this part of the world.
| 4) | Pork supplies are steadily growing, with weekly hog weights moving higher through mid-October. Average hog weights are listed at 285.4 pounds per head, which is nearly 2 pounds higher than last week. This is also 0.8 pounds higher than year-ago levels. |
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