Activity is yet to develop in cash cattle trade, but firm support in futures and wholesale beef values help solidify expectations of higher cash prices. Although asking prices are starting to pop up, feedlot managers remain hesitant to price cattle too early in the week in the event continued underlying support in the complex leaves revenue on the table once the dust clears. Additional bids and asking prices should develop through the morning Wednesday, although active trade may not be seen until sometime Thursday or Friday. Given the fact that cash cattle prices have steadily moved higher each of the last six weeks, a continuation of that trend higher is expected, especially with the help of active boxed beef gains through the last several days. Futures trade is expected mixed to generally higher with the generally bullish tone through the live cattle complex helping to spark additional underlying support. Even though prices were not able to secure active gains Tuesday, the continued steady support developing in the complex adds to the "slow but steady" shift higher seen over the last several weeks. October futures are nearing expiration, which could spark some additional front-month volatility, but traders continue to focus on December contracts reaching for the $117 per cwt levels through the end of the month. Wednesday slaughter runs are expected at 118,000 head.
Underlying pressure in lean hog futures is expected to continue through the rest of October and likely taint early November trade as continued questions of whether a partial trade deal will be signed in November when the presidents of China and the U.S. will be on hand at the G-20 summit. Although the pork industry continues to watch for a partial trade deal, uncertainty grows. China's pork production remains devastated by African swine fever, and our pork industry's assumption is China will supplement its need for pork by aggressively importing U.S. pork. But if that is not their plan, it could minimize the overall impact on the hog and pork industry of any partial trade deal with China. It is good to remember that China has been dedicated over the last decade to becoming self-sufficient in pork production. Even with the devastation of African swine fever, this still seems to be their goal. So any additional pork exports to China that do develop are expected to be a short-term plan on their part until they can rebuild hog production supplies domestically. That does not change the fact that pork prices continue to soar in China and at some point they should buy additional pork from us in order to limit consumer price levels for the sake of their economic health. Cash hog values are expected to be steady to $1 per cwt lower, with most bids $1 lower. Expected slaughter Wednesday is 490,000 head. Saturday runs are expected at 235,000 head.
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Nearby live cattle futures continue to churn higher as steady to firm buying steadily moves into the complex. This has moved prices to six-month highs with traders looking for additional long-term support based on tighter beef cattle supplies during early 2020.
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Feeder cattle futures continue to have a hard time sparking underlying support despite the continued gains in live cattle trade. The seasonal increase in spring calves moving to market, has dampened market expectations with November contracts still unable to breach resistance levels of $146.07 per cwt established in mid-October.
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The firmness in futures trade and continued aggressive moves higher in boxed beef values are creating expectations of firm to higher cash cattle trade by the end of the week.
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Questions of "how much longer can the rally continue" keep coming to mind as live cattle futures have been on this steady price incline since early September. This could bring about a moderate to firm correction with limited long-term concern, but quickly disrupt the momentum being built in the complex.
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Continued talk that a partial trade deal with China may be ready for signatures at the G-20 summit in November remains the dangling carrot that still is giving a sense of hope that active buyer support will develop before the end of the year.
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Nearby lean hog futures continue to struggle to maintain recent buyer support. December futures are currently within striking distance of breaking through initial support levels of $64.25 per cwt set in mid-September. A move below these levels would put the next target near $60 per cwt once again.
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Pork cutout values sparked renewed support Tuesday, indicating additional buyer strength is moving into the complex. This support is based on continued strong domestic demand that cannot be understated given the aggressive supply glut the entire pork complex remains entrenched in.
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Growing uncertainty of China's intent to buy U.S. pork ahead of any partial trade agreement or after puts additional tension on the entire complex. None-the-less, traders continue to focus on the upcoming export sales report Thursday with hopes that active China sales will appear.
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