Limited activity is likely in cash cattle trade early Tuesday morning, but the aggressive triple-digit rally in futures trade and firm boxed beef support is creating underlying bullishness to start out the first full week of 2020. With limited showlists available and overall market-ready cattle tightening the next few weeks, this is the opportunity for feeders to drive their stake into the ground and demand continued market support. Bids and asking prices may not be fully developed until midweek, likely pushing trade off until Thursday or Friday. Firm follow-through support is expected in futures trade as the aggressive triple-digit rally Monday was led by renewed support in feeder cattle futures as nearby January contracts held a $4.07 per cwt rally. The aggressive buyer support had more to do with active trade volume moving back into the complex following the holidays rather than a change in market direction, as most traders looked for underlying support to be developing through early January. Monday's rally broke the complex out of the sideways pattern in feeder cattle trade while live cattle markets continue to test resistance levels, but so far, have been unable to move to contract highs. However, the week is still young, with underlying bullish momentum still developing across the entire complex. Tuesday slaughter runs are expected near 121,000 head.
Lean hog futures have stabilized Monday with prices holding narrowly mixed moves. But the continued pressure late last week is still holding a strong grip on the complex with traders still showing signs of nervousness concerning overall global political unrest. The signing of the phase one trade agreement is still scheduled for next week, although there is no indication that this is in jeopardy, there is plenty of uncertainty surrounding long-term growth and export demand that is limiting trader bullishness. Following late-week losses, there remains a $2.50 to $3 per cwt gap between current price levels and recent highs. Without a strong shift higher through the upcoming days, this may be enough to establish a well-defined sideways trend that could limit further upside market movement during the month of January. Cash hog prices are called $1 lower to 50 cents higher Tuesday morning with most bids expected steady. Slaughter Tuesday is expected at 495,000 head. Saturday runs are expected at 225,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Sharp triple-digit gains in live cattle and feeder cattle futures has sparked renewed support through the entire complex. The focus on tighter market-ready supplies through the next several weeks is sparking increased buyer support as market volume returns following the holiday break. | 1) | Given the strong buyer support in cattle futures early in the week, live cattle trade has still been unable to break out of the narrow sideways trading range, moving to contract highs. Resistance continues to hold in April contracts at $128.20 per cwt. The inability to hold prices above this December price level may limit long-term support in the complex. |
| 2) | The combination of aggressive futures support and renewed support in boxed beef markets is sparking increased expectations of higher cash cattle trade at the end of the week. This should allow for aggressive gains when cattle are priced by feedlot the next couple of days. | 2) | Concern surrounding global economic development and renewed political strife surrounding Iran continues to add a hint of doubt in a generally bullish market structure. This could quickly spark market liquidation if traders start to show any concern of a general economic pullback in the near future. |
| 3) | Underlying bullishness concerning short- and long-term demand from China continues to be the underlying tone that is keeping traders looking for increased support through the next couple of weeks. This increased demand has the potential to spark increased long-term support through the entire lean hog trade. | 3) | Cash hog values have been able to hold within a limited trading range, but the inability to demand higher cash hog prices given the aggressive packer interest is concerning given the expected strong demand support through the upcoming weeks. |
| 4) | Pork cutout values bounced higher Monday as traders continue to focus on strong domestic demand following the holiday season. Although most of the news is focused on expected export demand growing to China, the ability to sustain strong domestic pork demand through the end of the year has helped to stimulate growing market expectations. | 4) | Friday's limit losses has reset the trading range in all lean hog futures at a lower level. Even though prices are starting to show stability early in the week, the fact that market prices have ratcheted sharply lower last week is creating concerns of short-term buyer support through the lean hog complex. |
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