Cash cattle interest remains subdued Tuesday morning following a normal Monday schedule of inventory taking and showlist distribution. Generally, showlists were steady to slightly lighter than the previous week, which is interesting given the general light market movement over the Thanksgiving holiday week. Packers are expected to need additional cattle over the upcoming weeks, not only to account for current demand, but plan ahead for the reduced processing schedules during the Christmas and New Year's holidays. Bids and asking prices are expected to start to develop over the next couple of days, although active trade may easily be delayed until Thursday or Friday. Given the continued need to supply current beef demand and aggressive packer margins, it is likely cash markets are pointing to steady-to-higher price levels by the end of the week. Futures trade is mixed in limited activity with spillover pressure from Monday's losses still fresh in the minds of many traders. The firmness expected in cash cattle trade as well as elevated beef values are likely to point to firm follow-through support through the month of December, although a market correction is likely after setting contract highs last week. Tuesday slaughter runs are expected at 118,000 head.
Initial movement in lean hog futures is expected to be mixed with follow-through selling pressure met by an attempt to cover short positions during the first half of the week. February futures led the complex lower Monday with losses breaching $2 per cwt as traders continue to remain concerned about the progress surrounding the partial trade deal with China. The next round of tariffs is slated for Dec. 15, and news reports coming out of China state they will not move forward on a trade deal until current tariff levels are rolled back. Add to this, President Donald Trump announced planned tariffs on Argentina and Brazil metal, and news reports Tuesday morning that France has announced retaliation over planned tariffs on several French products by the U.S. All of the tariff talk, even though it doesn't specifically affect pork, is weighing heavily on the overall lean hog complex during early week trade. With lean hog futures already near long-term market lows, downward price potential remains generally limited by the negative export news. Cash hog bids are expected to be $0.50 lower to $0.50 higher per cwt with most bids steady. Slaughter Tuesday is expected at 492,000 head.
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| 1) | Firming boxed beef values during early week trade is pointing to increased underlying support for the upcoming week. The expectation that domestic and export demand for beef will continue to grow not only through the end of the year, but steadily firm through the first quarter of 2020. | 1) | Feeder cattle futures are having a hard time breaking out of the choppy but sideways trading pattern seen over the last couple of months. This may limit short and long-term direction in feeder cattle futures, potentially curbing recent support seen in live cattle futures. |
| 2) | The reopening of Tyson's Kansas beef plant on a limited processing schedule is expected to expand overall beef capacity through the end of the year. It is uncertain how much short-term impact this will have on cash values, but given the strong packer margins, should spark increased support through the upcoming weeks in cash cattle values. | 2) | Firm pressure in live cattle trade Monday is putting more attention on a potential correction following last week's gains. This could add additional underlying weakness over the short term, with February futures potentially moving back to $124 per cwt or lower. |
| 3) | Cash hog values bounced higher Monday as packers continue to aggressively source hogs given the current packer margins. | 3) | Sharp losses in nearby lean hog futures trade is not the way many traders wanted to come out of the Thanksgiving break. The inability to hold August lows in nearby contracts will open the door for additional liquidation. |
| 4) | Lean hog futures remain oversold with prices testing long-term lows. Although export concerns may limit strong underlying support, the downside market potential remains limited through the upcoming weeks. | 4) | Growing concerns from both sides on the likelihood that the U.S. and China will meet in the upcoming weeks and be ready to sign a partial trade deal is adding additional pressure on the already weak lean hog complex. |
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