Cash cattle activity Monday is expected to be limited to showlist distribution and inventory-taking through most of the day. Following the ability for feeders to push prices higher at the end of last week, the underlying firm market tone is expected to continue through the upcoming days. Trade in the North was the first to develop Friday with prices at $198 to $200 per cwt, mostly $200, which represented a $1 per cwt gain from the previous week. Southern trade was more delayed and did not develop until mid-to-late afternoon, with prices fully steady at $124 per cwt live basis. Asking prices and bids are not expected until near midweek, which will likely push trade off until late in the week once again. Futures trade is focused on strong but cautious buyer support moving into live cattle and feeder cattle trade late last week. This moved live cattle futures even closer to short-term highs, but the complex continues to hover within a narrow but firm trading range just below long-term resistance levels. The underlying tightness of market-ready cattle supplies and continued demand support in the beef industry is expected to help bring additional support to the entire complex, although overall limited upward movement is likely through the upcoming weeks and months. Monday slaughter runs are expected near 121,000 head.
Lean hog futures are expected mixed in limited trade early Monday, as traders still remain cautious concerning long-term market direction and expanding trade to China and other major pork exports over the near future. There is no indication that the planned signature of the phase-one trade deal will not take place or anything will delay the process, but traders still remain much more reserved due to overall political tensions, especially in the Middle East. The announcement by Iran over the weekend that it did unintentionally shoot down the Ukraine airliner is adding even more tension. Middle Eastern issues have little direct impact on the overall demand for pork, or focus on pork exports, but the concern is how it will impact overall trade relations with other trading partners who have stronger ties to Middle Eastern countries than the U.S. This overall concern is not restricted to just the meat or pork industry, but a major factor in all financial and commodity markets. The overall impact of African swine fever continues to take its toll on global production as Asia supplies are still limited, and there are growing concerns that outbreaks are getting closer to Germany, which would be a major blow to European production levels. Cash hog prices are called 50 cents lower to 50 cents higher Monday morning with most bids expected to be steady. Slaughter Monday is expected at 495,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Stronger cash cattle prices late last week in the North continues to put more support on the underlying strong demand for market-ready cattle during the month of January. This is expected to further bolster early asking prices as feeders take advantage of the firm market support. | 1) | Despite holding live cattle futures prices at the top end of recent trading ranges, strong resistance levels continue to move to new contract highs. The expected tight, short-term supplies through the first quarter are quickly countered by expected growth in beef supplies through the rest of the year. |
| 2) | Nearby live cattle futures have the opportunity to break out of the month-long sideways trend and post new contract highs early in the week. With April futures trading at $127.95 late Friday, early January highs of $120.10 are well within reach through morning trade. A move through these resistance levels should help support moderate technical support in the upcoming days. | 2) | Boxed beef values stabilized at the end of the week, but the inability to keep pace with steady-to-higher cash cattle trade through early January is further eroding packer margins. The inability to command higher wholesale beef values is adding concern that increased underlying pressure may further develop as 2020 continues. |
| 3) | Expanded global demand growth is expected to continue through early 2020 with additional concerns of further African swine fever outbreaks limiting overall global supplies, while pork demand remains high, especially through Asia. | 3) | Cash hog values continue to show little room for firm market moves despite the underlying focus that long-term market support may develop across the hog complex. The ability for packers to still fill aggressive plant schedules with steady-to-lower cash price levels points to the abundance of market-ready hogs within the production system. |
| 4) | The planned midweek signing of the phase-one trade deal with China continues to create underlying long-term optimism that pork demand growth will continue to develop over the upcoming weeks and months. | 4) | Even though the signing of the partial trade deal is expected during the week, limited short-term impact is likely in the hog market. This may actually create bearish pressure on lean hog and pork prices as so much of the positive news surrounding a trade agreement has already been factored into market prices. |
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