Cash cattle trade remains at a standstill going into Wednesday morning with both sides hovering on the sidelines waiting for more direction in futures trade and wholesale beef values before jumping into the market and offering bids or pricing cattle. The strong market rally over the past three trading sessions combined with firm wholesale beef price support last week will create optimism in feedlot managers as they aggressively price cattle, expecting nothing less than steady money by the end of the week. Saddled with eroding packer margins and the outlook of additional cattle numbers available at their disposal in the next six to eight weeks, packers are expected to fight hard to keep prices steady to lower through the week. This could create a significant standoff that may not develop in cash cattle being sold until late Friday, potentially after the release of the cattle on feed report Friday afternoon. Early estimates for the cattle on feed report point to light to moderate gains in all categories, although moderate analyst ranges develop, leaving uncertainty heading into the end of the week. Futures trade is expected steady to higher early Wednesday morning as the underlying momentum continues to build through the cattle complex following April futures able to hold prices above $120 per cwt, and clearly establish a market low last week near $117 per cwt. Although sharp follow-through gains will be difficult to sustain over the near future, the potential for a more steady to firm market growth could help to build increased confidence through the entire complex. Wednesday slaughter is expected near 121,000 head.
Mixed trade is expected to slowly develop early Wednesday morning with the ability to hold prices above early month lows as increased momentum is likely to slowly but steadily move back into the lean hog complex. With improving signs that new coronavirus cases in China seem to be slowing and the daily death tolls have started to drop slightly early in the week, there is additional hope that more U.S. pork will continue to move into the country over the coming weeks. Traders will also watch the export sales report which will be delayed until Friday due to the holiday on Monday, but it is not expected that a strong bump in exports to China will be seen until either the last week in February or early March at the earliest. Even though China has announced that it will allow tariff waivers on certain products, and pork is involved in this list, these waivers will have a more long-term impact that will affect trade through the rest of the year rather than immediate movement of product. With continued strong pork production expected through the U.S., it is likely that prices may continue to hover in a moderate range from $65 to $68 per cwt in spot April futures. Cash hog prices are called 50 cents lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Wednesday is expected at 495,000 head. Saturday runs are expected at 180,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Continued strong futures support seen in feeder cattle trade during early week trade is helping to spark additional bullish market support through live cattle futures. This focuses on not only buyer interest in nearby contracts, but triple-digit gains developing in summer and fall feeder cattle trade. | 1) | Sharp losses developed in choice and select beef cuts Tuesday afternoon, resulting in lower boxed beef values. The inability to sustain last week's momentum in beef prices could derail the optimism being seen through the cattle market. |
| 2) | Tighter market-ready cattle numbers are still seen, with this trend expected to last another three to four weeks. This should give cash trade markets an opportunity to take advantage of recent gains in beef values and the surge in futures trade, resulting in higher cash cattle through the end of February. | 2) | Expected increases in cattle placements and overall cattle on feed numbers in Friday's report is expected to spark overall uncertainty through the complex as traders focus on potential growth in long-term cattle numbers which may limit price support through the second half of the year. |
| 3) | Sharp gains in cash hog prices and pork cutout values Tuesday is sparking moderate to strong fundamental support through the entire complex. This is expected to help stimulate additional longer futures support as traders build on recent gains. | 3) | Lack of additional news surrounding pork exports to China continue to add concern that active global demand may be much slower to build than previously expected early in the year. This could limit additional upside market movement through the entire lean hog complex. |
| 4) | Indication that coronavirus cases appear to have started to decline in China is helping to spark renewed optimism that the country may start getting back to a more normal business routine within the country. This would help to spark additional pork demand, potentially adding to new exports from the U.S. | 4) | Hog production continues to remain extremely strong through the month of February, and 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 months. |
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