It was no surprise that cash market activity was quiet the first couple days of the week with both sides pushing cash market decisions off until after the holiday break, and into 2020. But now that we have arrived in the new year, it is time for packers and feedlot managers to buckle down and get to business. Although limited direction shift is likely to be seen in cash cattle trade through the end of the week, the first trade of the year has the potential to set the tone for the rest of the month. Packers already have moderate amounts of cattle sourced for the next couple of weeks with contract deliveries expected as well as a portion of December negotiated trade scheduled for delivery through the first two full weeks of January. But even though overall trade volume totals may not be huge, the tone of the market is expected to remain steady to higher as feedlot managers have shown aggressive asking prices before the holiday. Packer bids are likely to slowly develop through the day Thursday, although active trade may not be seen until sometime Friday. Futures trade is expected mixed in a narrow range. With holiday schedules still limiting overall trader interest, limited overall direction is likely, although the strong underlying tone seen in the market is likely to continue as traders focus on expected tighter market ready cattle supplies through the upcoming months. Thursday slaughter runs are expected near 121,000 head.
Limited market direction is expected early Thursday morning as traders are moving into the new year, but very little fundamental or technical factors have changed over the last few days. Lean hog markets appear to be similar to many "New Year Resolutions," in that there are higher expectations and hope that things will change, but many of the same uncertainties and market trends seen in 2019 will still continue through 2020. Domestic lean hog production continues to remain extremely strong, and will likely grow through the upcoming months. But expectations of China buying is the golden egg eyed by the entire industry. But with little measurable details of what Chinese imports of pork will look like creates a vague picture of how much overall clearance the industry can expect during the upcoming weeks and months. This is expected to keep futures trade moving in a narrow to moderate range over the next couple of days. Cash hog prices are called 50 cents lower to 50 cents higher Thursday morning with most bids expected steady to firm. Slaughter Thursday is expected at 495,000 head. Saturday runs are expected near 403,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Cash cattle trade is expected to develop over the next two days with increased focus on steady to higher trade values to start out 2020. | 1) | Wholesale beef values slipped lower during early-week trade, creating the concern that additional pressure may develop as holiday demand is wrapping up. This could limit short-term support through the entire beef complex, although longer-term optimism still remains. |
| 2) | Continued expectations of eroding market ready cattle supplies through the next couple months should spark renewed expectations of higher cash and futures trade as traders move into the heart of January trade. | 2) | Lack of volume through the end of the week could limit "New Year optimism" through the entire cattle complex. With overall trade activity likely to still remain sluggish until early next week, futures prices may find it hard to show significant market gains. |
| 3) | Firm cash hog values closing out the end of 2019 has sparked expectations of continued cash market support during the New Year. This is expected to keep producers focusing on increased cash values based on aggressive packer paces through early January. | 3) | Wholesale pork values eroded in late December, as traders move past holiday demand surges and back to a more normal, and routine demand schedule. This could limit short-term support as consumers return to normal eating patterns, and focus on "cutting back" to meet New Year's resolutions. |
| 4) | With the signature of a partial trade deal with China still expected during mid-month, the focus on how this deal will affect short- and long-term pork demand continues to keep traders' expectations active, looking for long-term price support to continue to develop. | 4) | The underlying tone of a growing hog herd through the first half of 2020, continues to move the discussion past potential export demand to China and the need to clear larger amounts of pork in order to maintain steady price levels due to the growing supplies. This puts even more pressure on the expected upcoming partial trade deal. |
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