Cash cattle business started to develop in the South Wednesday afternoon with light trade at $120 per cwt live basis. This is $1 per cwt higher than last week's average and signifies a break in the lower market trend of the last few weeks. Feeders continue to look for even higher prices as packers have previously been able to suppress prices despite a tight supply of market-ready cattle through the last six weeks. Business has not yet been seen in the North, with bids still hard to pin down. But asking prices remain at $122 live and $194 to $195 dressed in the North. With the upcoming Cattle on Feed report, it is possible additional trade may hold out until late in the week, potentially after the Friday afternoon release of the report. Futures trade is expected mixed. The bullish support in feeder cattle futures has helped support live cattle futures. Despite expectations that feeder cattle placements in January will be above year ago levels, demand for feeder cattle to put into feedlots, as well as light-weight cattle to place on grass through the spring, remains strong, allowing for firming prices in the still oversold market. The fact that April live cattle futures set February highs Wednesday afternoon, closing at $120.80 per cwt, helps build additional support through the market and likely will stimulate additional gains through the end of the week based on technical support, but may limit momentum through the end of the month. Even though demand remains strong, the inability of last week's gains in beef values to hold is causing some concerns that may limit further buying in the near future. Thursday slaughter is expected near 121,000 head.
Strong triple-digit gains in lean hog futures have continued with the expectation that pork purchases will start to develop over the next couple of weeks. Even though active increases of export sales may not be seen in this week's delayed report released Friday morning, the focus that buying will be done through the end of February and early March is sparking renewed buyer interest in all nearby contracts. The combination of continued concerns about African swine fever limiting domestic pork production in China, the need to regain stability as the country tries to contain coronavirus, and pork being placed on the list of products for which tariff exceptions will be allowed, points to additional buying in the coming weeks. The main question is if these purchases will be enough to outweigh the currently large production levels in the U.S., and break out of the weaker price pattern seen over the last two months. Cash hog prices are called 50 cents lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Thursday is expected at 495,000 head. Saturday runs are expected at 185,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Higher cash prices starting to trickle into parts of cattle country Wednesday have broken the spell of lower moving markets seen over the last couple of weeks. This is creating additional optimism from feedlot managers to hold onto higher asking prices through the rest of the week, as additional cattle buying is likely needed in order to fill procurement needs. | 1) | Boxed beef values have continued to struggle to maintain last week's support. The lack of continued market gains in wholesale beef values heading into the spring season is causing limited concern about the ability to maintain active buyer support in futures. |
| 2) | Market momentum continues to build in feeder cattle futures. Nearby contracts have rallied over $6 per cwt over last week's lows, as technical support continues to redevelop through the entire complex. Given the oversold status of the market, there remains limited resistance at current price levels, allowing markets to move another $3 to $5 per cwt higher before hitting technical resistance. | 2) | Packer margins continue to tighten through February. This is likely to limit cash market spending and could curtail the amount of cattle purchased in the negotiated market over the next few weeks, as plants tighten belts, and potentially limit overall plant runs in order to focus improving short-term margins. |
| 3) | Active gains have finally redeveloped in nearby lean hog futures as long-term expectations of buying from China have caused traders to step off the sidelines and back into the market. | 3) | Pork cutout values moved swiftly lower at midweek, creating concerns that the strong support seen in futures and cash trade may be limited if pork prices are not able to show significant improvements over the upcoming days. |
| 4) | Cash hog prices continue to show moderate to firm market support, indicating that even though strong pork production leaves ample hogs available to packers, higher prices are needed to move these hogs into the plant system due to the expected demand over the upcoming weeks and months. | 4) | Hog production continues to remain extremely strong through February and is likely to continue through the first half of the year. This will continue to limit price support despite potential export growth to China over the coming weeks and months. |
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