Cash trade still remains sluggish and generally undeveloped going into Thursday morning. A few deals developed in the South about $2 per cwt lower than last week. The limited activity is still likely not enough to call a good market trend, but the combination of weaker cash markets and tumbling futures prices points to moderate price pressure. Asking prices still remain at $125 live in the South and $198 to $200 dressed in the North, but at this point, these seem nearly impossible given the bearish overall tone in all livestock futures trade. Futures trade is expected mixed in limited initial trade. Although the underlying bearish market tone from last week is expected to continue, traders are looking for short-covering opportunities. These opportunities typically present themselves early in the session when overall trade volume still remains light. If enough buyers can move into the market early Thursday morning, there is a chance of bringing stability to the live cattle and feeder cattle trade through the Thursday session. Traders are also looking forward to the cattle inventory report, which will be released Friday afternoon. The opportunity to adjust positions ahead of the report may cause some light interest, but the report itself will not be officially traded until next week given the release of the report will be after the markets close Friday. The overall focus in all livestock markets remains on long-term demand uncertainty. Although expectations that domestic demand will remain strong, the growing supply levels make it essential to escalate export demand of beef and pork in order to push prices higher. Thursday slaughter runs are expected near 121,000 head.
Lean hog trade is looking for any sign of market stability following another round of triple-digit losses Wednesday. This latest selling spree left most nearby lean hog contracts significantly unsupported with prices breaking through long-term support levels set in August of 2019. The move below $69.90 per cwt set last August is significant because this symbolized the overall bearishness of the entire lean hog complex and inability to move additional pork into China due to the continuing trade war and breakdown in trade negotiations early last fall. Following the August low, prices rallied over $15 per cwt on the hopes and expectations of a trade deal. Now that we have a signed partial trade deal in place, markets have once again tested and broken through these support levels. This time the main focus remains on concerns about overall demand surrounding the coronavirus in China. Although this pressure is not just based on overall concern for the amount of number of people affected, the coronavirus could have a significant impact on China's economy, which will significantly limit overall pork demand over the near and distant future. Cash hog prices are called $1 lower to $1 higher with most bids expected steady to firm. Slaughter Thursday is expected at 495,000 head. Saturday runs are seen at 228,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Domestic beef demand is expected to continue through the upcoming months, which is likely to help build additional support into boxed beef values over the coming weeks. | 1) | Firm underlying pressure in futures trade swept through live cattle and futures trade during the week. This is creating additional concerns that widespread trader liquidation may continue to develop through early February. |
| 2) | A moderate pullback is in overall cattle inventory levels is expected in Friday's report. The main focus will be the expected lower beef cow numbers, which would indicate a move away from herd expansion in the next year. | 2) | Indications from the few cash cattle deals that developed Wednesday point to moderate-to-firm cash market pressure. With January cash market prices showing little support over the last few weeks with markets steady at best, this comes as a disappointment given the tighter cattle supplies through the first quarter. |
| 3) | Cash hog prices have continued to show support through the week as packers continue to remain aggressive in sourcing market-ready hogs to keep plants full through late January. | 3) | Sharp triple-digit losses flooded into the wholesale pork market with cutout values falling over $4 per cwt Wednesday. The combined losses during the week is creating a bearish market picture when it comes to overall pork values through the end of the month. |
| 4) | Mild weather conditions have sparked increased production levels at the farm and plant levels. Typical January levels make it a challenge to move hogs due to cold weather and increased snow limiting travel and hog safety. But the mild weather conditions in most areas have taken the focus away from traditional winter weather issues. | 4) | Continued active support Wednesday in all nearby lean hog futures quickly broke through long-term support levels in April futures. The move below $69.90 per cwt was significant as this represented what many thought was the long-term market low, and an anchor to build upon through the trade war discussions with China. |
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