Cash cattle trade ended the week generally steady with trade in the South developing mostly Thursday at $119, whole Northern trade held out until Friday afternoon with most trade at $190 per cwt, generally steady with the previous week. Cash markets are expected to remain sluggish Monday with asking prices and bids likely undeveloped until near midweek. This is the last full trading week of the year, and with the holiday lull ahead of us, it is likely that trade may be pushed to the end of the week once again. Futures are expected mixed. The strong move Friday sparked a technical bullish signal in the cattle complex. Live cattle futures closed at $127.55 per cwt, setting contracts highs as well as breaking through short-term resistance levels and trading at the highest level since April. This move higher accounts for a $21 per cwt rally since September lows, and the potential for increased underlying support going into early 2020 when cattle numbers are expected to show increased tightness. But the moves through the end of the year could be uncertain given the expected lack of volume surrounding the holidays. Monday slaughter runs are expected at 121,000 head.
Triple-digit gains in lean hog futures Friday following the announcement that a partial trade agreement had been reached added bullish optimism to the complex. There are still a lot of questions that need to be answered, and as with this entire trade process, any move forward is covered with skepticism if either, or both sides will back out. The move forward in the process is a good thing for the lean hog complex given the need for pork and all protein in China due to African swine fever still remaining a significant production challenge in the country. But the questions about projected ag imports to China actually reaching the $40 billion to $50 billion levels touted by President Trump and Lighthizer are going to raise increased debate through the upcoming days and weeks. The bottom line is that any move forward with trade agreements is a good thing for the pork industry, and this should help to draw long-term support to the depressed lean hog complex. Cash hog prices are called steady to $1 per cwt higher Monday morning with most bids expected to be steady to 50 cents higher. Slaughter Monday is expected at 492,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Spot February live cattle futures set new contract highs Friday, sparking expectations of additional bullish support flooding into the complex through the next couple of weeks. The ability to break out of the sideways trading range during December is creating technical support in the complex. | 1) |
With holiday trade just around the corner, increased questions of trade volume and the ability to sustain recent gains is a main concern. Light holiday trade can sometimes bring about unexpected and unexplained trade moves, which could damage the upside market shift late last week.
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| 2) | Boxed beef values bounced higher at the end of last week. This move higher and a break from the strong market slide the last two weeks is creating hope and expectations that renewed pre-holiday support will be built through the wholesale beef market before the end of the year. | 2) |
Despite moving prices to eight-month highs, traders still remain concerned about the ability to continue the upward movement in the near future. The wide market move Friday could bring increased price volatility to the complex, leading to wide triple-digit moves in either direction without significant fundamental changes to the market.
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Lean hog futures surged higher Friday, breaking out of the narrow sideways trading range, and trading at the highest levels in nearly a month. The underlying support surrounding positive agreements with China concerning trade is expected to spark additional end-of-the-year price support.
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Even though an agreement with China has been announced, the fact that nothing has been signed, and both sides have been known for balking at agreements following the announcement, is adding even more nervousness to the market. This could leave traders questioning how secure an agreement is for quite a while.
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Pork prices continue to show underlying support as Friday's wholesale pork cutout value bounced 22 cents higher Friday. Even though price gains were not huge, the support of underlying futures support and upcoming holiday demand is expected to bring increased gains early in the week.
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Despite the market rally and trade agreement, it is essential to remember that China still desires to rebuild its own pork production system and remain as self-sufficient as possible after getting African swine fever under control. This still leaves long-term pork exports to China uncertain.
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