Cash cattle trade remains quiet going into Thursday morning with both sides looking for additional direction. Recent support in beef values and extremely attractive packer margins continue to push the limit on current cattle. Even though supply tightness is expected over the next couple of months, packers have great incentive to push capacity levels in order to take advantage of current margins. This should improve bids over the next couple of days. Asking prices are expected to redevelop at $117 live in the South and $185 and higher through the North. Futures trade is mixed following a pullback in all livestock trade at midweek. It is too early to tell if this shift lower will turn into a full blown market correction, which has been brewing, or if traders will be able to hold prices near the top end of the trading range, as they look for further support through the end of the week. Currently, it appears holding December contracts above $120 per cwt may remain a challenge given the seasonal pressure typically seen through the end of the year. Thursday slaughter runs are expected at 118,000 head.
Pressure swept through lean hog futures Wednesday, erasing previous gains. Back-and-forth price moves continue to be sparked by the on-again and off-again notion that China will sweep into the market and rid excess pork supplies. There is no doubt China needs pork supplies due to African swine fever. But the question traders have yet to definitely answer is: Will China buy its way out of production losses? And if so, will they buy the pork from the U.S.? Traders continue to have hope aggressive China purchases are developing, which will put even more attention on Thursday morning's export sales report, and overall movement and sales of pork to China over the last week. Cash hog values are expected to be $1 higher to $1 per cwt lower, with most bids expected 50 cents lower. Expected slaughter Thursday is at 490,000 head. Saturday runs are expected at 245,000 head.
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Aggressive midweek gains in wholesale beef values continue to point to strong overall demand for beef through early November. Triple-digit gains developed in choice and select cutout values, creating expectations of further late-week support.
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Sharp losses developing in feeder cattle trade have accounted for a $2 to $2.50 per cwt tumble through the week. This is creating concern that aggressive follow through weakness will develop, setting the tone for a weaker November ahead.
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| 2) |
Expectations of continued cash market gains at the end of the week are developing despite the pullback in futures trade at midweek. The focus on aggressive packer margins is expected to create incentive for packers to keep plants full in the near term. In order to do this, added money is expected for cash sales.
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Limited follow-through interest in live cattle futures at midweek is creating uncertainty about further short-term market support through the complex. If traders are unable to regain footing and challenge short-term resistance levels near $120 per cwt in December contracts, selling pressure is likely to develop as traders may prepare for a moderate correction.
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Traders are looking for good news in Thursday morning's export sales report. The hope that all of the focus on continued demand needs in China will spark renewed active sales continues.
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Despite renewed buyer optimism in lean hog futures, the lack of confirmation that aggressive Chinese imports from the U.S. are in the near future could quickly sour trader attitudes.
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World demand for pork continues to grow as the effect of African swine fever appears far from over. This should help open the door for increased pork sales, not only to affected countries, but most other countries which have already exported pork to China in order to backfill supply levels.
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Traders are closely watching the morning Weekly Export Sales and Shipments report Thursday. Without a moderate to strong presence of China export sales in the report, further market bearishness is likely to develop as traders continue to point to China as the main hope to get out of the supply glut seen through the country.
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