Cash cattle activity is heading into midweek with little direction and asking prices and bids are still not fully disclosed. The light-to-moderate buyer support in futures trade and firmness in beef values Tuesday is expected to help bolster additional feeder resolve as they look to expand the upward market trend the last couple of weeks. Although packer margins are attractive, the pullback from previous levels is not going unnoticed, which will cause a push to limit country spending. Most cattle trade is expected to be pushed to the end of the week. The developing winter storm system through the upper Midwest has had little impact on overall cattle futures or cash market trade at this point. Unless the projected storm moves further south, the long-term impact on overall cattle moving to market is not expected to be significant. This may have a bigger impact on moving spring calves to market, which are scheduled to move over the next couple of weeks. The overall impact, although disruptive on a regional levels, is not expected to have a significant impact to the cattle market or cattle numbers as a whole. Futures is expected to be mixed in light-to-moderate morning trade. The wide ranging price shifts in hog futures is likely to spark some follow-through movement in the live cattle and feeder cattle trade. Feeder cattle futures have thus far ignored the aggressive corn market gains, but this is not expected to continue long term as feed costs will once again become a major factor in pricing feeder cattle through the upcoming weeks. Wednesday slaughter runs are expected at 117,000 head.
Mixed early reaction is expected in lean hog futures as traders focus on nearby hog trade regaining early week losses on Tuesday. This intense back and forth shift early in the week is setting up additional volatility into what could be an even more uncertain week of trade. With trade talks with China expected to start Thursday, the fact that high level officials will be on hand during this meeting is creating the show of force by both sides. This signals that each side means business, but it is uncertain just how much each side is willing to give on main issues that have halted the process in the past remains the main questions. With long-term pork demand near the center of the issue as China continues to struggle with African swine fever, ag products and pork trade will continue to have an elevated role in the direction of any trade decision. But it is important that the sticking points for the U.S. have not been specifically on trade, but fundamental ways the Chinese government does business. And this could continue to be a strong challenge moving forward. Cash hog values are expected steady to $1 per cwt higher, with most bids steady to weak. Expected slaughter Wednesday is at 489,000 head. Saturday runs are expected at 245,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Slow but steady buyer support in live cattle trade has continued to hold prices at the top end of short-term market ranges through early October. This continues to add stability to the complex with potential follow-through buying possible during late October.
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Firm technical resistance is holding at $111 per cwt in December live cattle futures. This could cap the recent market rally, which has essentially been unchecked over the last month.
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| 2) |
Wholesale beef values bounced higher Tuesday, pointing to follow-through support, which had been expected given the strength in cash cattle and futures trade. This is expected to spark underlying support in the entire complex.
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Noncommercial buyers have been slow to return to the live cattle or feeder cattle futures complex as markets have marched higher the last month. It is likely that these traders will remain comfortably on the sidelines, and in other markets until nearby live cattle futures are able to break above the resistance levels set in early August.
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| 3) |
Sharp gains Tuesday offset limit losses on Monday, helping to rekindle potential further support in the complex. The ability to hold support levels of $64 per cwt in December futures through the week of trade talks is likely to create technical buyer support in the hog markets.
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Lean hog futures remain volatile following wide back and forth market swings early in the week. Trade limits have been reset to $3 per cwt Wednesday morning, with potential trade talk news creating the potential for strong losses during morning trade.
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| 4) |
Continued hope that both sides of the upcoming trade talks will be willing to compromise on significant issues in order to resolve the trade dispute that has had significant impact on both countries and is helping build market support across nearby and deferred lean hog trade.
| 4) | Strong support in cash hog values Tuesday has sparked underlying support in the entire complex. Even though hog supplies remain large, the current packer margins and expanded packer capacity is creating incentive for packers to keep plants full by adding to cash hog values. |
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