The first cash cattle business in 2020 is going to come down to a late week, Friday showdown with previous bids of $198 dressed basis in Nebraska being passed on Thursday and unless a major disruption develops in futures trade will be expected to redevelop Friday morning. Asking prices are holding at $125 live in the South and $200 and higher in the North on a dressed basis. The focus on the underlying fundamental support and expected tighter supplies through the next couple of months is pointing to the need for packers to remain aggressive in order to source needed plant runs. The current standoff is likely to continue through most of the day with active trade potentially not seen until sometime Friday afternoon. Futures trade is expected mixed to mostly lower. The initial surge lower as traders entered 2020, created some uncertainty through the complex which will continue leave jitters through the entire market the rest of the week. Although traders look for tighter short term supplies, which is still considered bullish for the market in general, the entire complex remains extremely ripe for a light to moderate correction over the near future. Friday slaughter runs are expected near 120,000 head.
Limited support held in lean hog futures Thursday as traders get back to work following the long holiday season. With traders setting the tone for light to moderate gains during early 2020, the focus continues to be split between domestic and export demand. Traders will closely focus on results from the weekly export sales report which will be released Friday morning, and likely have a significant impact on initial opening prices depending on the amount of export sales and deliveries seen during the Christmas week. The focus in the report from here on out will be on 2020 commitments and deliveries as there still remains a large amount of undelivered commitments to China for 2019 on the books going into the last week of the year. This could create some adjustments to the reports over the next couple of weeks which have little to do with current trade levels, but none the less, may add uncertainty to the market. Futures are expected mixed during late week trade with a combination of follow-through buyer support and end-of-week positioning developing in nearby and deferred contracts. Cash hog prices are called 50 cents lower to 50 cents higher Friday morning with most bids expected steady. Slaughter Friday is expected at 486,000 head. Saturday runs are expected near 405,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Expectations of continued longer-term support in all cattle trade due to tighter first-quarter supplies is likely to create a firm undertone through the live cattle complex. This is likely to limit potential market weakness on a long-term basis, despite short-term price gyrations. | 1) | Warmer temperatures in most cattle feeding areas is adding underlying pressure to the entire complex. The focus on most temperatures above freezing through the week, and a continuation of the warm trend is causing unseasonably January conditions, which will help to stimulate increased gains and nearly ideal growing conditions. This will speed gains and allow for earlier marketing of cattle if the weather pattern holds. |
| 2) | The aggressive need for packers to gain access to market-ready cattle through the month of January is creating increased packer bids and sparking even more aggressive asking prices through the end of the week. This is pointing to higher cash cattle prices during the first week of January. | 2) | Live cattle futures broke away from sharp Thursday morning losses, but the shift lower has created significant uncertainty during early January. With prices unable to break through resistance levels in late December, the potential for a moderate correction is developing despite firm fundamental support. |
| 3) | Strong post-holiday support in pork cutout values points to the ability to sustain current consumer demand through the holiday season. This is expected to solidify underlying short-term market fundamentals, with the potential of increased buying interest developing over the next couple of weeks. | 3) | Expectations of growing China demand have already been factored into the market through the first half of 2020. If there are any hiccups or delays to the signing or implentation of the partial trade agreement, it is likely that the lean hog complex will take this as a bearish market signal, leading to potential sharp losses. |
| 4) | Although news surrounding the partial trade deal with China has been quiet over the last several days, the expectation that a signing on January 15 is still on schedule is helping to add support to the entire lean hog complex. | 4) | Aggressive packer levels with continued strong supplies is limiting short-term cash market support through the entire complex. This may cause further market softness during the next several weeks as market ready hogs continue to be readily available to packers. |
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