Limited direction is expected in cash cattle trade Tuesday as bids and asking prices are likely to remain quiet through the first half of the week. Even though Monday was a market holiday, packers were still open for business, but the shorter week will likely spark some early week interest. Given cash cattle trade at the end of last week ended generally steady to $1 per cwt lower, most traders are likely looking at creating additional stability through the month of January. Although market-available cattle are tightening significantly, so are packer margins, which will limit the desire for many cattle buyers to dig deeper into their pockets in order to fill buy orders. This could lead to another end of the week standoff. Futures trade is expected to open firm to moderately higher following the gains in boxed beef values Monday. Select cuts rallied $0.73 per cwt, while choice cuts bounced $0.47 per cwt higher early in the week. Even though live cattle prices pulled off of recent highs the last two weeks, the market still remains well within the sideways trading range near the top end of the market. This is creating some potential firm support early Tuesday on which commercial buyers may step back into the complex. Tuesday slaughter runs are expected near 121,000 head.
Firm underlying gains last Friday helped to build some additional market momentum into the complex as traders exited the market for a long holiday weekend. This market bounce may be more psychological in nature, but it is still creating underlying support that is expected to help draw additional buyer activity to the complex early Tuesday morning. Strong upward movement in cash cattle trade Monday and increased pork cutout support early in the week is bringing additional fundamental support to the entire complex. With the signing of the phase one trade deal in the rearview mirror, the market will closely watch for indications of China making pork purchases over the near future. The best indication to see accurate numbers will be the weekly Export Sales report, which are typically released on Thursdays, but will be delayed due to the federal holiday Monday. There is limited additional direction likely early Tuesday morning as light trade is expected during the first couple hours of futures trade after the markets open. Cash hog prices are called steady to $1 higher with most bids expected steady to firm. Slaughter Tuesday is expected at 496,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Strong underlying support is redeveloping in boxed beef values. Despite limited overall movement Monday, the strength in beef cutout values Monday is likely to help spark increased underlying support through the first half of the week.
| 1) | Extremely low temperatures through the northern regions of cattle country is likely to limit cattle movement and overall performance through the upcoming week. This may limit overall cattle weights through the next couple weeks. |
| 2) |
Tight market-ready cattle supplies are expected to continue through most of the first quarter of 2020. This is likely to create additional aggressive focus on packers trying to keep plants full and beef commitments met through the upcoming weeks. This should help to solidify cash cattle prices over the coming weeks.
| 2) | The inability to push cash prices higher last week is causing some concern that the recent cash market rally may be ending given the significant reduction in packer margins over the last couple of months and limited expected demand growth through the first quarter of the year. |
| 3) |
Triple-digit gains in cash hog values Monday is a good sign that increased underlying support is moving into the lean hog complex early in the week. Traders are looking for continued support through the week, but likely remain generally bullish as they focus on potentially higher cash prices.
| 3) | With the Chinese New Year quickly approaching, it is expected that little market news or direction will be seen from China during the holiday season. This could limit trade volume and create uncertainty about further short-term buying activity to the country. |
| 4) |
Strong underlying support in spot February futures Friday helped to move prices further away from recent market lows. The potential to stimulate additional noncommercial trade support through the next couple of weeks will go a long ways in rebuilding confidence in the still-weak market structure.
| 4) | Despite the bounce off short-term lows late last week, lean hog futures trade remains weak. Nearby lean hog contracts have fallen nearly $4 per cwt since the beginning of the year, as traders remain concerned about the ability to offset record domestic production with potential export growth to China over the near future. |
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| #completecalfcare |
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