Despite the Christmas holiday just a couple of weeks away, cash cattle markets are following the weekly script with limited interest likely to develop early in the week. Packers continue to focus on increased overall cattle moving through the system following the higher cash cattle markets last week. Feedlot managers are likely to remain even more aggressive when cattle are priced the next couple of weeks in order to take advantage of the positive cash market momentum of the last several weeks. Both sides are abundantly aware of tighter supplies just around the corner, which gives packers incentive to put as much beef away at current or slightly higher cash prices as possible despite the eroding beef values. Cash cattle bids are not likely until midweek or later with a late week trade event likely at this point. Futures are expected mixed with traders potentially remaining a little too comfortable with the current trading range heading into the holiday season. With Christmas and New Year's holidays landing in the middle of the week, it is uncertain just how this will affect not only trade volume but overall market mentality through the end of the year. When holidays are in the beginning or end of the week, a "long weekend" is typical, but markets seem to be more disruptive during midweek holidays, with limited scattered trade throughout the week, rather than a couple of days. Cattle market direction still remains split between short- and long-term direction with nearby futures still concerned about current availability of market-ready cattle, while increased premium is being placed in the spring and summer contracts based on potential tighter supplies. Most of the supply tightness is expected to be limited to the first quarter, but current packing capacity could keep packers aggressive through the first half of the year, depending on demand support during early 2020. Tuesday slaughter runs are expected at 120,000 head.
Firm underlying pressure developing Monday is expected to be carried into Tuesday morning's session with little change developing the last couple of days. Nearby February contracts continue to strongly defend support levels at $66 per cwt. The ability to hold above December lows of $66.15 will be significant in helping to spark some much needed buyer momentum through the next couple of weeks. With continued support developing in cash markets, packer margins continue to be tightened the last couple of weeks, but there still remains significant incentive for packers to keep aggressive plant runs going given the current availability of market-ready hogs. Continued focus on increased China buying continues to be an uncertainty as there has been no confirmation of significant buying being done after China has allowed for tariff-free imports on pork last week. This still could develop, but the market remains hesitant as the focus is on the talked about partial trade deal, which is expected to be making progress the past couple of weeks. Cash hog prices are called steady to $1 per cwt higher Tuesday morning with most bids expected to be steady to 50 cents higher. Slaughter Tuesday is expected at 493,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Firm underlying support in feeder cattle futures continues to spark further expectations as prices break above $141 per cwt during early December. The focus on tighter market-ready cattle during early 2020 is likely to spark increased buyer support in the near future. | 1) |
Continued pressure in beef values is developing with boxed beef prices eroding on a daily basis through most of December. This lack of support in wholesale prices is quickly eroding margins and could add underlying bearishness through the end of the year.
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| 2) | Aggressive packer interest continues to develop despite the erosion of beef values the last couple of weeks. This is putting even more focus on the potential that further short-term cash market support is expected, as packers put increased beef into freezers to supplement longer-term needs. This should help to limit long-term pressure in live cattle and beef values during the upcoming months. | 2) |
Lackluster futures trade is seen in feeder cattle and live cattle markets during early week trade. This could limit additional market support over the near future, allowing spot-month futures to back away from recent market highs.
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| 3) | Continued cash market support is becoming a standard practice through early December, as packers need to dig deeper into their pockets in order to fuel the aggressive packer appetite the last few weeks. | 3) |
Strong early week pressure in nearby lean hog futures continues to keep short- and long-term support levels in reach. A break through $66 per cwt levels in February futures would likely spark additional liquidation, creating further concerns of long-term market weakness.
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Traders are looking for increased export sales from China in the upcoming Thursday report. Although at this point, the market has not indicated a significant buying event, the consistent increase in buying week-over-week by China is expected to help solidify buyer support long term.
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Pressure in wholesale pork values is creating concerns that domestic demand is starting to fall into seasonal pressure following holiday buying wrapping up for the year. This could add increased concern of additional end of the year losses.
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