Moderate cash cattle trade developed through the South Thursday afternoon with prices hovering at $122 per cwt. This is steady with the limited midweek trade Wednesday, but $2 per cwt lower than last week. The underlying pressure in the complex is not a significant surprise given the fact that futures trade has tumbled lower the last week and beef values have been lackluster at best. Thursday trade in the North was limited to $194 to $195 per cwt, but some trade will potentially hold out until after the Cattle Inventory report Friday afternoon. Although this may not prove to be a significant change in market structure, the expectation of lower overall cattle inventory, especially lower beef cow numbers should bring some underlying support to the entire cattle complex. Given the fact that market moves the last week have had very little to do with rational thought and decisions, it is hard to expect trade to flip a switch and return to "rational decision making" before the end of the week. Futures trade showed light-to-moderate support Thursday as it appears the bearish undertone may be running out of gas in the cattle complex. Although the complex still remains oversold, the potential for end-of-the-month short-covering may quickly allow for price support at the end of the week. But the general tone of all livestock markets still remains generally weak as traders remain concerned about the short- and long-term impact of coronavirus in China, and the impact on not only immediate beef demand, but long-term economic factors. Friday slaughter runs are expected near 121,000 head.
Lean hog futures trade continues to be in "free fall" mode with everyone searching and looking for a bottom, but no one knowing just how much further it will move before panic selling stops. Limit losses in all nearby lean hog contracts Thursday not only pushes contracts to or near contract lows, but expands the aggressive losses over the last week. April futures have tumbled nearly $10 per cwt in the last week and concern of further losses are possible. The limit moves in trade Thursday also opens up the door for expanded trading limits on the last day of the week and month. This would allow prices to move $4.50 per cwt in either direction before trading is halted. The concern that prices could take another significant dive before markets close for the week and traders move onto February expectations could allow for additional panic selling during Friday's session. The lean hog complex remains oversold given the long-term expectations of demand, but at this point, rational thought has little to do with the current movements in the market as traders still remain focused on uncertainty surrounding coronavirus and just how this will impact overall demand with China. Moves in the market this week have reinforced just how dependent the U.S. is on the need to expand pork demand in China due to aggressive domestic pork production. Also the fact as stated over the last few weeks, that increased China trade has already been factored into the market, and any deviation from this demand growth will have a dramatic impact on price levels. Cash hog prices are called $1 lower to $1 higher with most bids expected steady to 50 cents lower. Slaughter Friday is expected at 491,000 head. Saturday runs are seen at 236,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Traders expect to see a moderate pullback in cattle inventory levels in Friday's report. The focus on reduced beef cow numbers could help to support long-term buyer support through the entire complex. | 1) | Lower cash cattle trade remains disappointing through the end of the month as both sides are starting to focus on larger market-ready supplies through late spring and summer months, creating the opportunity to push cash markets higher on a short timeline. |
| 2) | Given the early week cash cattle trade, the focus on current-to-moderately tight market-ready supplies continues to stimulate active buying interest through the week. Even though cash cattle prices have softened, full pressure of futures losses over the last week have not been realized. | 2) | Continued pressure in beef cutout values and generally weak packer margins through the end of the month are creating packer resistance to pay more for cattle, and allowing many to step into the market to book cattle through the middle of February. This could limit underlying support over the next few weeks given the still aggressive need for packers to fill commitments. |
| 3) | Lean hog futures remain oversold following the recent market losses. This may create the opportunity for light-to-active short-covering early Friday morning due to limited overall volume in the complex. | 3) |
Limit losses in lean hog futures Thursday has sparked increased bearishness through the entire complex. This move may continue to add active liquidation Friday morning to most lean hog trade.
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| 4) | Strong packer margins continue into late January as the aggressive pressure in futures trade has had little impact in cash hog or pork cutout prices at this point. | 4) | Cash hog and pork cutout values struggled to maintain stability late in the week given the underlying bearish technical pressure in the complex. The fundamental market weakness through the end of the month could add additional widespread concerns during Friday trade. |
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