The limited cash cattle trade Monday afternoon in Iowa was expected to be more focused on clean-up trade opportunities from last week than developing a trend in the market for the current trading week. For the most part, asking prices and bids are still hard to come by, but asking prices should improve over the day Tuesday. It may be midweek or later before packers show any significant interest, but the recent futures weakness and trend of steady-to-lower beef values last week may spark significant resistance to higher price levels by the end of the week. Futures trade is expected mixed. Although a weaker market trend has developed as prices have quickly backed away from recent resistance levels and moved further from the tight trading range near contract highs, downside market movement is still expected to be somewhat limited by the tight supply situation, and continued strong beef demand is expected through early 2020. Feeder cattle futures may remain the market to watch as potential early January pressure could quickly build through the upcoming weeks as prices back away from recent highs due to the long-term market direction being much less bullish than short-term price expectations. Tuesday slaughter runs are expected near 120,000 head.
Lean hog futures continue to weaken during early January as traders have moved through December lows in February contracts. Although April futures are still holding above long-term support levels, the shift lower in spot February futures Monday landed a bearish technical blow on the lean hog complex. With the signing of the phase one trade agreement within days, the market shows no indication of positive market moves with prices falling significantly through the first two weeks of January, and creating additional concerns through the entire industry. April futures still remain above long-term support levels set last year, although the weaker tone in the complex is adding some additional pressure in all nearby and deferred contract months. Early trade is expected to remain mixed Tuesday morning. Although the bearish market tone continues, the swift pressure early in the week is likely to cause moderate short-covering opportunities due to limited early-morning volume. If significant gains can develop in the early minutes of trade, this could help to break traders out of the market slide during the next couple of trading sessions. Cash hog prices are called 50 cents 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 150,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Strong boxed beef gains developed Monday, as the steady-to-higher cash cattle trade last week helped to stimulate market firmness. If the wholesale beef values can push higher through the week, this will help spark renewed interest in cash and futures trade. | 1) | Sharp feeder cattle losses Monday adds questions of short- and long-term support to the cattle complex. A one-day market tumble is not enough to change market direction, but the lack of support over the last week could signal a market high has already developed. |
| 2) | Tight short-term cattle supplies still exist over the next several weeks. This is expected to help stimulate additional active interest from packers as they focus on keeping plants running at optimal levels in order to fulfill beef commitments through the upcoming months. | 2) | Recent weakness in plant margins is expected to tighten cash market expectations from packers over the near future. This could lead to steady-to-lower cash values despite tight cattle supplies. |
| 3) | Strong gains developed in pork cutout values with trades looking for building fundamental support moving into the heart of 2020. | 3) | February lean hog futures broke through long-term support levels of $66.15 per cwt Monday, which created bearish technical signals through all lean hog trade. |
| 4) | Despite the recent moves in lean hog futures trade, the signing of the phase one trade deal remains positive for the pork industry. This will take some additional pressure and uncertainty off of export market expectations through the upcoming months and help to move additional long-term pork supplies. | 4) | Growing concerns surrounding tensions with Iran and the Middle East have impacted market directions through the last week. The concerns that this will affect trade with other trading partners well beyond the Middle East is causing the most uncertainty in lean hog futures trade. |
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