Cash cattle trade is expected to remain quiet early Tuesday with limited packer interest likely until Wednesday or later. A few asking prices developed late Monday in Nebraska at $115 live and $180 per cwt dressed, but cattle still need to be priced through the South. It is likely that cash cattle trade will be delayed until the end of the week, although the focus on futures gains is whetting the appetite and creating expectations of another strong rally through the end of the week. Futures trade is expected to remain generally higher early Tuesday morning following the momentum shift higher the last couple of weeks and strong triple-digit gains able to hold Monday. December futures closed at $133.45 per cwt Monday afternoon, indicating a generally unchecked rally of $14 per cwt since hitting September lows. A move above $114.30 per cwt would break through July resistance levels, sparking additional technical support through the remainder of October. Although supply tightness is expected during early 2020, the concern that this pace of upward movement in the market may be limited is expected to curb upward market support over the next couple of weeks. Even though firm support is expected the next few months, the short term moves in the market are not likely to follow the aggressive upward trend over the last week. Tuesday slaughter runs are expected at 117,000 head.
The general tone of lean hog trade remains supportive as traders continue to remain optimistic about the potential for a partial trade agreement to be signed in the next month or so. But optimism has been tempered early in the week as it appears there is conflicting understanding as to how secure any such "agreement in principle" as it has been called will be over the next several months. Given the back and forth moves in the 15 months that trade talks have taken place, it would not be surprising if either side would either back away or add restrictions on the proposed deal. The overall amount of purchases that the agreement covers remains vague, with traders uncertain of what products are involved, and the timeline of purchases. The impact of such an agreement is significantly different if $40 to $50 billion of ag products is for one year, or spread out over several. These are all things that are still very uncertain. Notice also that there has been limited new market news coming out of China concerning African swine fever. Although the devastation to the herd and need for pork has likely not changed, less focus on it has taken it off of the front burner in the general news category. Strong continued cash market support during early week trade has helped to firm fundamental market support, although the limited moves in futures trade continues to cause many traders to remain cautious of further support. Cash hog values are expected to be steady to $1.50 per cwt higher, with most bids expected 50 cents to $1 per cwt higher early Monday morning. Expected slaughter Tuesday is at 487,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Strong early week gains in nearby live cattle futures has sparked increased bullish momentum in the entire cattle complex. This is causing traders to center in on July resistance levels set at $114.30 per cwt as the next upside market target.
| 1) |
The aggressive market support in the last month in live cattle and feeder cattle futures is leaving the complex ripe for a moderate price correction. This may create variable market shifts through the end of the month given overall supply and demand levels are not likely to see major adjustments in the next few weeks.
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| 2) |
Feeder cattle futures continue the late-year rally with prices moving $18 per cwt above August lows. The expectations of long-term supply tightness is helping to stimulate market interest as traders move prices to the highest levels since May.
| 2) |
Feeder cattle futures have made an $18 per cwt run higher on prices over the last five weeks. This underlying support is helping to spark open interest and is creating caution to further short-term moves over the near future. Unchecked gains can easily lead to active losses, sparking increased overall market volatility in the coming weeks.
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| 3) |
Continued strong cash market support in lean hog trade is helping to spark buyer support in the entire lean hog complex. Packers remain aggressive in sourcing hogs through the middle of October in order to keep plants full.
| 3) |
Buyer support in lean hog futures was tempered Monday despite active gains in other livestock markets. This is creating some concern that traders may be slowly backing away from the complex now that trade talks seem to be finished until November.
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| 4) |
Optimism continues following trade talks with China. Announcements that China's consumer inflation is near a six-year high, based partially on the strong surge in pork prices in the country continues to focus on the countries need for additional pork product.
| 4) | Supplies of market-ready hogs continue to be burdensome for the market. This is creating uncertainty in the entire complex as traders are reminded that product still needs to be sold on the retail market. Without significant China buying confirmed for the near future, pork remains plentiful for domestic needs. |
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