Cash markets will likely remain quiet early in the week with limited interest seen on Monday. Asking prices are still yet to be well defined, and packers may not show any significant activity until midweek or later. Last week's pressure in cash markets seemed to take the wind out of the sails following the underlying pressure in most commodity markets, but there seems to be a growing sense of optimism during early February that feedlot managers can bounce off last week's lows and support higher cash prices through the month. But continued support will be needed in futures trade and boxed beef values in order to help support any upward movement in cash values over the next couple of weeks. Futures trade is expected mixed to mostly higher in early trade. There continues to be a lot of uncertainty surrounding the long-term impact of coronavirus in China and how this will impact overall beef demand. But for now, virus news coverage has been bumped off of the front burner, potentially helping markets to get a more realistic assessment of short- and long-term demand changes over the coming weeks and months. Building on Monday's gains and avoiding January lows should spark limited bullish market support through the entire cattle complex. Tuesday slaughter runs are expected near 121,000 head.
Little has changed in overall hog market fundamentals the last couple of days, but buyers quickly moved into the complex Monday morning, posting triple-digit gains in most nearby contracts. April futures continue to be the main focus as traders continue to quickly exit the February contracts as it nears expiration. Building on early-week support will be essential to regaining market support through the month of February and bringing active interest back into the complex. The technical structure of the lean hog futures complex still remains weak, but if traders can string together two or three positive market moves, the potential to establish a low at last Friday's close of $61.60 per cwt remains encouraging and is likely to spark increased buyer interest to step back into the complex through the upcoming days and weeks. Even though the market remains oversold and driven by emotion, the ability to regain all of the losses last week remains an aggressive goal based on the remaining uncertainty of global pork demand and impact of coronavirus on China and its economy. Cash hog prices are called $1 lower to $1 higher with most bids expected steady to weak. Slaughter Tuesday is expected at 495,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Triple-digit gains in April live cattle futures Monday is helping to spark renewed market support through the entire cattle complex. Regaining market support is expected to help push prices higher in early February. | 1) | Continued weakness in boxed beef values Monday is causing underlying concerns that additional follow-through support may be difficult to build despite gains in futures trade. This could limit market optimism through the rest of the week if beef values are not able to rebound. |
| 2) | Generally mild weather through late January and early February not only is creating improved growing conditions for feedlot cattle but is also expected to stimulate improved demand through the country as consumers. This should help to spark increased beef consumption, breaking away from seasonally sluggish demand. | 2) | The moderate-to-strong cash market pressure last week has allowed packers to gain access to needed cattle over the upcoming weeks. This may limit the need for aggressive cash market purchases during the week, potentially limiting cash market support. |
| 3) | Firm underlying support in cash hog values has helped to bring some stability to the otherwise weak hog complex. With cash values showing increased signs of life Monday, the focus on packers still searching for market-ready hogs is likely to spark underlying growth in pork values. | 3) |
Despite the firm market gains Monday, it is essential to remember that lean hog futures prices are still depressed given the $14 per cwt losses in April futures last week. Regaining most if not all of the recent losses will be difficult to do given the weaker market structure.
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| 4) | Triple-digit gains in most nearby lean hog futures indicates that traders are still active in the complex and may be convinced that markets have reached rock bottom given the aggressive and emotionally led liquidation last week. This could help to bring active support back into the complex over the upcoming days. | 4) | Questions remain about how coronavirus will impact China's demand and overall economy over the coming weeks and months. This may directly impact expected pork purchases that were planned and could potentially change target levels set in the recent trade agreement. |
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