Cash cattle trade is expected to remain generally quiet through the day with limited bids likely before the last half of the week. Although asking prices have become more available with cattle priced at $126 to $127 per cwt live basis in the North and South, and $205 and higher dressed in the North, the overall lack of early week interest from packers at this point will likely delay trade until Thursday or Friday, most likely Friday. Feedlot managers continue to focus on steady to higher money in order to continue the firming market trend through early 2020. Given the fact that ready cattle supplies are tightening over the next couple of months and packers still need to aggressively source cattle in order to maintain the strong underlying demand developing through the winter and spring months, packers are expected to remain aggressive despite eroding margins. Futures trade is expected mixed, but could show some underlying stability and excitement as more focus is put on the signing of the phase-one trade deal with China. Even though there is still a long ways to go in order to make either side happy, and the overall impact on beef exports will be much smaller than other commodity markets, any step forward is a positive move. Even with the back and forth trade over the last couple of weeks, live cattle futures still remain "in the hunt" of contract highs, with April futures holding within a 50-cent range of December highs. The ability to break through this resistance level in the coming days is expected to spark underlying noncommercial buyer support during the last half of January. Wednesday slaughter runs are expected near 121,000 head.
Wide market swings in nearby lean hog futures over the last week has created growing uncertainty, but strong market anticipation through the entire hog complex. Triple-digit gains Tuesday quickly offset early-week market pressure as traders balance aggressively growing production levels with the anticipation and hope of renewed sales of pork to China. With the signing of the phase-one trade deal scheduled for Wednesday, the focus on increased market anticipation is likely to bring underlying support back to the complex. But this still does not overshadow the fact that much of the anticipated benefits of the partial trade deal are likely already factored into futures prices and traders look for record or near record domestic pork production through the coming year. Cash hog prices are called 50 cents lower to $1 higher Wednesday morning with most bids expected steady. Slaughter Wednesday is expected at 495,000 head. Saturday runs are expected at 152,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Aggressive improvement has developed in boxed beef values through the early part of the week. Weekly market support has added nearly $2 per cwt to beef values, allowing expectations of further price support to develop through the coming days. | 1) | Live cattle futures have continued to hit their heads on resistance levels with no indication that a break to new contract highs will develop in the short term. Each time prices test and fail to move through these resistance levels, it appears to limit trader interest through the entire complex, allowing markets to hold in a moderate range just below recent market highs. |
| 2) | The partial trade agreement with China is expected to spark underlying support in most commodities, with beef markets notwithstanding. The potential to move additional, although limited beef values to China through the upcoming years is likely to spark some firm fundamental long-term support through the cattle complex. | 2) | Significant weakness over the last two months in packer margins is creating increased pressure on the need and desire to limit increased cash market spending. Although beef values started to rebound this week, the concern that lackluster growth in spring demand may limit wholesale beef values. |
| 3) | The signing date of a much anticipated phase-one trade deal has arrived. This is expected to create some underlying support through the entire complex as many had wondered if any actions would be accomplished. This is expected to create some underlying confidence through the entire lean hog market over the coming weeks. | 3) | The anticipation of strong pork production growth through the entire year is curbing optimism surrounding the expected signatures of a phase-one trade deal with China. Without increased exports to China, the growing amount of pork produced through the year is likely to spark increased price pressure. |
| 4) | Traders are looking beyond the signing of the partial trade agreement with China and on to the weekly export sales report Thursday. The anticipation of moderate early January movement of pork to China is expected to help bring additional stability to the entire complex. | 4) | Despite a trade agreement with China, the trade relationships still remain tense and a long way from the long-term goal of a "wide ranging" trade agreement. This is not expected to move the U.S. to a preferred trade status any time soon, if ever. |
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