Cash cattle interest developed Tuesday as the aggressive pressure in futures trade brought additional fears of further market losses and caused feeders to jump at early-week bids. Asking prices are expected to redevelop around $123 live in the South and $195 and higher dressed in the North. The development of light trade at $119 to $120 per cwt live basis is $1 to $2 per cwt lower. Although total sales numbers are too light to set an accurate trend, without a major shift in futures prices or beef values, it is likely that a lower market trend will continue through the rest of the week. The question still not answered, is if the limited early trade on Tuesday will be enough to hold off additional activity until the end of the week in the hopes of a market rally, or if this will spark a quick "midweek affair" as both sides pull the trigger. Futures trade posted strong triple-digit losses in all nearby contracts, pushing prices to the lowest price levels since late September in April contracts. The aggressive technical pressure in the cattle complex over the last month has taken $10 per cwt off of nearby price levels. This aggressive market liquidation is creating concerns of additional follow-through pressure in the near future. The inability to spark renewed support in wholesale beef values as futures and cash prices have eroded the past three weeks is adding even more concern about demand stability through the spring months. Wednesday slaughter is expected near 121,000 head.
Widespread livestock market pressure sparked follow-through weakness Tuesday in the lean hog futures trade. The potential to continue to erode prices lower through midweek may keep prices contained in the developing sideways trend. Although the general premise of strong demand support remains the focus following the trade deal with China and demand for pork long term, continued concern of coronavirus essentially keeping parts of China closed for business is causing major uncertainty about the ability to increase short-term demand for pork within the country. Due to the expected 30-day implementation period surrounding the phase-one trade deal, Saturday, Feb. 15, would be the first day that many traders are waiting for to see if there will be buying from China. It is important to remember that this date is a starting date, with China able to make purchases anytime through the year. This makes it uncertain if there will be significant purchases over the weekend, next week, or not. But nonetheless, these purchases will not be reported in export reports until the last week of February. 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 140,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Given the market pressure in live cattle futures, the complex remains oversold based on still strong domestic and export demand. Once the initial flurry of technical liquidation ends, buyers are expected to become much more active.
| 1) | Aggressive technical pressure continues to push prices to four-month lows as traders grapple with continued uncertainty about how the coronavirus outbreak will impact overall short- and long-term beef demand. Changes will be driven by logistical issues and an inability to move product, and not so much by consumers change in attitude and appetite for beef. |
| 2) |
Continued long-term beef demand growth is expected to develop in domestic and export markets through the upcoming weeks and months. This is likely to bring needed stability to the cattle complex.
| 2) | Additional cash market pressure that developed early in the week is a sign that additional cash market softness may develop later this week as feeders are concerned of further market losses as the week continues. |
| 3) |
Expectations of demand growth in China continues to outweigh current coronavirus concerns on a long-term basis. This is likely to help regain underlying buyer support the next few days, as lean hog futures establish support levels.
| 3) |
Traders continue to back away from last week's market rally. Two-day losses in April futures have reached nearly $2 per cwt, sparking additional concerns that prices may test last week's market lows before regaining active buyer interest.
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| 4) | Even though African swine fever has fallen off the radar due to coronavirus concerns around the world, it is premature to overlook the continued effects of ASF on pork production through the remainder of the year. This opens up significant demand support for U.S. pork supplies. | 4) |
Active pressure in pork cutout prices has added to the underlying concern of market weakness in the complex. This could continue to erode last week's support.
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