Friday's Cattle on Feed report came in as close to expected as realistically possible with placements, marketings and total cattle on feed numbers just a fraction of a percent away from early pre-report estimates. The focus on growing placement numbers and growth of feedlot supplies during the month of December is no surprise to the industry. The fact that these larger supplies will likely heavily impact supplies through the last half of the year continue to create a reality that even greater beef demand will be needed through 2020 to maintain current price levels. Cash cattle trade last week started to develop midweek, as prices ended the week following limited clean up activity through the rest of the week. This left prices steady with the previous week at $124 live in the South and $199 dressed in the South. The overall lack of support in cash cattle markets through the month of January is disappointing given the aggressive need for packers to find market-ready cattle through the supply-tightened first quarter. Although packers are expected to still remain aggressive in fueling active slaughter rates, the concern is that recent weakness in futures trade and lackluster boxed beef values may cause limited cash market erosion through the upcoming weeks. Futures trade is expected mixed in a limited trading range early Monday morning. Although Friday's Cattle on Feed report comes in as expected, the strong growth in placements and overall cattle on feed numbers is still a hard pill to swallow, and is likely to carry some negative price implications early Monday morning. Monday slaughter runs are expected near 121,000 head.
Lean hog futures posted aggressive triple-digit losses Friday but is focusing on continued concerns that coronavirus in China may continue to significantly limit overall movement of pork as well as overall demand. With the Chinese government scaling back Lunar New Year activities through the country last week as well as quarantining several large cities where the bulk of the cases have been reported not only sparks concern about overall pork demand within the country over the near future, but speaks to the ability to freely move product to consumers over the near future. Lean hog futures still remain within the wide sideways trading range of the last couple of months, but prices are dangerously close to hitting and breaking through initial support levels set during early January. A move below these price levels is expected to spark a bearish technical shift, opening the door to additional pressure in the near future. Continued domestic supplies of hogs is likely to limit the short-term upside market potential as packers aggressively continue to keep processing speeds in "high gear" due to excellent packer margins and the potential to grow export demand over the coming months. Cash hog prices are called $1 lower to $1 higher with most bids expected steady to 50 cents lower. Slaughter Monday is expected at 496,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Continued tight cattle supplies through the first quarter of 2020 is still expected to keep packers actively searching for market-ready cattle through the upcoming weeks. This has the potential for feedlot managers to price cattle higher during late January. | 1) | Aggressive pressure that continues to develop in feeder cattle trade is sparking uncertainty through the complex. With nearby contracts falling $8 per cwt the last two weeks, the concern of breaking through November support levels is adding increased market concern. |
| 2) | Despite the higher placement and cattle on feed numbers Friday, the fact that total numbers were expected and brought no surprises to the report is likely to bring about limited market support early in the week. | 2) | Despite the fact that cattle on feed numbers were expected, the significant growth in placement numbers and overall cattle in feedlots continues the bearish expectations for summer and fall supply levels. |
| 3) | African swine fever in Europe continues to be closely watched. With the additional announcements of outbreaks in Poland last week, this becomes a greater concern to the German pork industry, which currently is a significant exporter of pork to China. | 3) | Sharp triple-digit losses have quickly developed in lean hog futures trade. The concern about continued large production levels in the U.S. and limited short-term growth during early 2020 in export demand is sparking concerns that an aggressive market surge may not quickly develop. |
| 4) | Traders continue to look for long-term market direction as expectations are that pork exports will continue to grow through the spring and summer months. This is likely to overshadow currently bearish supply levels. | 4) | The uncertainty of how wide a coronavirus outbreak in China or other areas of the world will be is creating significant impact on short-term pork values. This could further limit pork and hog prices based on fear that the virus will significantly impact demand. |
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