Cash business may be done for the week following light-to-moderate trade that developed Tuesday and Wednesday. Most of the trade on Wednesday was seen as clean-up activity with prices steady with earlier trade this week. But these prices are $3 to $5 per cwt below last week's trade levels. Live Southern trade is at $115 per cwt for the week, while dressed trade in the North posted a wider range from $184 to $187 per cwt, but both sides are willing to move into the first week of March as they try to reestablish market stability in an unstable market. Futures trade is expected mixed in limited early trade. This continues to focus on the potential that buyers are willing to step back into the complex following the aggressive sharp losses early in the week. The continued weakness in outside markets and inability for stock markets to hold early gains is keeping additional focus on recent market weakness. Triple-digit gains in nearby feeder cattle trade through the session Wednesday was a good sign, but the inability to sustain early gains in live cattle trade continues to add uncertainty in the complex. With April and June live cattle futures currently hovering above long-term support set last August and September, the question of whether these support levels will hold is becoming a significant reality. If April futures do break below $110.17 per cwt, the potential that additional widespread commercial liquidation may quickly move into the complex increases significantly. Even though most of the focus remains on global instances of coronavirus, the underlying concern remains how the market will be able to hold if increased outbreaks are seen in the U.S. Wednesday slaughter is expected near 121,000 head.
Active buyer support slowly but steadily moved into lean hog futures trade Wednesday. Sustaining higher prices in the summer and fall contracts helped to change the narrative from the recent widespread market losses, which developed through the week. Although the overall tone still remains weak, it is very possible that the lean hog futures has found short-term support levels. We have to remember that widespread market losses surrounding coronavirus is not new to the lean hog complex. Although this week has rocked most other commodity and stock markets as coronavirus has become a global issue and not just an issue that plagued China. The dependence that lean hog and pork markets have on Chinese trade already was hit hard by coronavirus concerns as it moved through China during late January. It is likely that January support levels will likely hold in nearby and deferred lean hog trade as traders find a way to establish a more stable sideways trend within the wide market range seen in the last two months. Traders will closely be watching the weekly export sales numbers. This week's report would be the first indication of any phase-one buying from China following the implementation period after the deal was signed. Although I wouldn't hold my breath for strong China sales in the report, a firm bounce in export numbers would significantly help the short-term outlook of the market. Cash hog prices are called $1 lower to $1 higher with most bids expected steady to firm. Slaughter Wednesday is expected at 495,000 head. Saturday runs are expected at 90,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Strong triple-digit gains Wednesday in feeder cattle futures was a breath of fresh air for cattle markets as traders look for potential stability following early week losses. | 1) | Continued pressure in cash cattle trade Wednesday confirmed earlier week losses. Although the market remains within early week price ranges, the fact that cash cattle prices fell $3 to $6 per cwt from last week's levels is weighing heavily on the entire complex. |
| 2) | Open interest in live cattle trade continues to hold surprisingly well through this latest round of market pressure. This indicates that active commercial and noncommercial support still remains interested in cattle markets, and will likely step back to the plate once the dust settles, likely over the next couple of days. | 2) | Strong follow-through pressure is seen in boxed beef values Wednesday. Although this is not a huge surprise given the aggressive losses in futures and cash markets, the concern that this weaker beef price move will impact longer-term spring and summer prices becomes a significant possibility. |
| 3) | Continued firm support in cash hog values has helped to move the focus away from recent pressure in futures and pork values. With increased trade focusing on the current hog supplies, the need for packers to push cash values higher is a refreshing sign of potential market current-ness. | 3) | Pressure developed in pork values with the cutout value falling $1.48 per cwt Wednesday. This is expected to limit the ability for active buyer support to move into the cash or futures trade in the near future, potentially leaving end of week trade generally flat. |
| 4) | Active gains moved into summer and fall lean hog futures trade Wednesday. This move higher could likely be the turning point in lean hog futures, which sets market support during the week. The ability for June futures to hold prices above $80 per cwt would quickly spark renewed market interest through the upcoming weeks. | 4) | Growing uncertainty of how coronavirus will impact global markets and overall consumer demand has the greatest long-term impact on pork markets based on the larger percent of U.S. pork sold in export markets compared to beef. This will continue to limit overall buyer support and the potential for hog prices to rebound sharply. |
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