The majority of cash cattle trade is still yet to develop over the next two days despite light trade seen in the South Wednesday as prices settled mostly at $115-per-cwt live basis. These prices are generally steady to $1 per cwt higher than last week's levels, but the biggest question will be if continued cash market support will develop following the shift in futures direction. The continued aggressive moves in boxed beef values continue to suggest that even more aggressive support is to be had due to strong packer margins as they try to keep plants full in order to process as many cattle as possible at current prices. But the change in direction of futures trade will likely create lower bids in an attempt to limit spending increases through the week. Futures trade is expected mixed as a combination of short covering and follow-through selling is likely through the early minutes of trade. The general weaker tone that started to develop Wednesday is likely to limit upside market support through the day, although the underlying tone of the market still remains firm as long as prices remain within range of the recent market highs. Thursday slaughter runs are expected at 118,000 head.
The sharp losses in cattle futures and continued uncertainty surrounding a partial trade deal with China is creating market increased softness through nearby lean hog futures. Nearby futures posted triple-digit losses Wednesday with December contracts leading the charge lower with a $1.60 per cwt tumble. This move lower in spot-month contracts took out what limited technical support had developed over the last week, breaking through initial support levels. This moves next significant support levels at $60 per cwt set in early September, although many had hoped that we were well past any indication that these seasonal lows would rear their heads once again. Although February futures remain firmly above early November support levels, the shift lower Wednesday could quickly cut into this recent market rally given the volatility across the entire livestock market. The continued, but limited support in summer 2020 contracts still has traders hanging onto long-term market support with a $30 per price premium between December and June contracts developing. Cash hog bids are expected steady to $1 lower, with most bids steady to weak. Slaughter Thursday is expected at 490,000 head. Saturday runs are expected at 345,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Continued aggressive gains in boxed beef values point to increased demand support that may overshadow recent futures losses. The ability to keep wholesale beef prices moving higher through the next week will likely limit the impact and longevity of futures market pressure. | 1) | Near-limit losses in January feeder cattle trade Wednesday created market uncertainty about the ability to regain market support in front of the upcoming holidays. This could spark increased pressure in all cattle trade through the near future. |
| 2) | Large packer margins continue to hold, which will add incentive to keep plants as full as possible. In order to do this, packers are expected to have to increase spending in order to give feedlot managers incentive to ship cattle before the Thanksgiving holiday, this is likely to add even more support to the building cash market rally seen over the last two months. | 2) | Seasonal demand focus on poultry through the Thanksgiving and Christmas holidays continue to create concerns that the recent trade activity and support in wholesale beef values may quickly shift lower with the aggressiveness as it was built over the last two weeks. This could spark additional widespread softness in the entire complex through the end of November. |
| 3) | Continued strength is seen in deferred summer lean hog contracts. This is creating expectations that increased demand will continue as hopes of long-term trade progress develop. | 3) | Continued pressure in cash hog trade points to still aggressive market ready hogs available at packers disposal. This is expected to limit any significant support in futures prices before the end of the month. |
| 4) | The seasonal glut in market ready hogs is expected to be reaching or past its peak through November. This should help to create some additional market momentum through the end of the year based on expected lower slaughter numbers over the coming weeks and months. | 4) | The continued uncertainty between the U.S. and China on if and how much tariff relief should develop in order to secure the partial trade deal, could continue to leave hog markets in limbo over the near future. |
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