Sluggish cattle trade Monday left prices mixed to mostly lower as traders come off of the "cash market highs" from late last week. The underlying support in cash cattle trade has helped to spark underlying buyer support in nearby live cattle futures, pushing December futures above $111 per cwt with a 42-cent gain. Limited losses through most 2020 contracts continues to offset the recent support expected in deferred markets based on the expectation that overall market-ready cattle supplies should slow down once we get to the new year. The overall pressure was felt in feeder cattle given the lack of underlying support in the entire complex. Early trade Tuesday is expected to remain mixed with traders still defending recent underlying support in nearby contracts, but overall market momentum in the complex is starting to erode. Given the recent strong run in live cattle futures without a major correction, it is likely that position-squaring will develop over the near future. The continued pressure in beef values the last couple of weeks continues to limit the upside market movement in cash and futures trade, despite the continued focus to keep cattle slaughter numbers elevated. Cash cattle trade is expected to remain quiet through the Tuesday session with limited interest from packers likely, although asking prices are expected to take form the next couple of days. It is expected that most trade will once again be pushed off until late in the week, although a few bids may start to develop by Wednesday. Tuesday slaughter runs are expected at 117,000 head.
Underlying pressure is expected to once again develop in lean hog trade following limit losses in nearby contracts Monday. This move Monday will allow expanded trading limits of $4.50 per cwt in all contracts as traders focus on a combination of export market concerns and continued supply issues facing the market. Although the overall short-term impact of the recent Hogs and Pigs report seems to have been muted until the last couple of days, the combination of growing concerns that trade talks through the end of the week will not develop the desired results could spark additional downward market pressure through the trade. Trade negotiators are expected to be in Washington, D.C., on Thursday, which leaves a lot of time left through the week for traders to speculate and wonder what the direction of upcoming talks will be. Given the political pressure on President Trump, there are questions of how willing China will be to make a quick deal with talk of impeachment on the table. That also creates uncertainty of just how aggressive Trump will be to hold to all of the previous points of contention at this stage of the game, in order to get a deal done quickly. Cash hog values are expected to be steady to $1 per cwt lower, with most bids steady to weak. Expected slaughter Tuesday is at 486,000 head.
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Firm underlying buyer support in spot live cattle trade continues to bring focus on sustaining the current market trend. A move above $111 per cwt, is helping to add increased market support given the firm cash market support the last two weeks.
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Firm underlying pressure in deferred feeder cattle futures creates additional underlying concerns about the ability to regain long-term market support. Feeder cattle futures posted triple-digit losses in first quarter 2020 trade, leaving concern that expected lower supplies may still not spark aggressive long-term support.
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Recent cash market strength is creating additional momentum for feeders to increase asking prices as they look for additional price gains at the end of the week. This may help to solidify additional support through early October, continuing the month-long rally futures rally.
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Wholesale beef values continue to erode lower, adding short- and long-term concerns to the complex that increased pressure may develop in the near future.
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Aggressive triple-digit gains quickly moved into pork cutout values Monday. This move higher continues to focus on the underlying support for domestic pork moving through the already-crowded system.
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Limit losses in December and February futures contracts on Monday set up expanded trading limits with increased underlying pressure still evident in the entire complex. This could lead to a volatile market the rest of the week.
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Growing anticipation continues to develop ahead of trade talks with China taking place later this week in Washington. This is viewed as the best opportunity to actually make progress since early in the year, with both sides feeling the impact of ongoing tariffs to domestic and global economies.
| 4) | Lack of market news ahead of the upcoming trade talks is creating concerns that significant progress may not be seen once negotiators wrap up talks and head home. This concern is weighing heavy on the lean hog complex, which needs significant support to manage growing pork supplies. |
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