Cash cattle trade last week continued to weaken as the week progressed, but the majority of trade was early, keeping overall price averages near the top end of the range. Given the underlying bearishness in cattle futures and outside markets leading into Monday's trade, the expectation is that cash market activity will remain quiet as both sides get their bearings. There is potential for some panic selling to be done in the event that prices continue to tumble lower as some sellers may be trying to cut their losses. For the most part, bids and asking prices are not expected until later in the week with inventory-taking and showlist distribution developing Monday. Futures trade is expected lower following limit losses Friday. Expanded trade limits are once again available for traders, which creates additional underlying concern given the uncertainty over the weekend and active pressure in overnight stock market and commodity futures. A wide price spread between cash and futures cattle prices and wholesale beef values is redeveloping as active retail buying has exploded over the last several days, leaving meat counters bare. This continues to point to growing concerns of maintaining supply chains, which focuses not only on the packing industry maintaining its capacity, but the transportation and distribution system not being halted by the recent virus concerns. Monday slaughter is expected near 121,000 head.
Lean hog futures are expected to follow the rest of the market lower. With expanded limits of $4.50 per cwt available in all contracts, the potential for additional aggressive losses in the market continues to be extreme. Not only are traders concerned about outside markets as more and more events and even basic daily life activities become affected, but the potential that COVID-19 may quickly hit packing plants and limit the ability to process market-ready hogs could create significant pressure in the already ballooning production cycle across the country. Moderate cash market support is still available to the complex given the need for wholesale and retail pork, but continued widespread futures market pressure is likely to the curb cash market momentum early in the week. Concern of additional transportation delays in shipping product to China is also expected to keep buyers cautious during early week trade. Cash hog prices are called $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Monday is expected at 493,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Strong gains in wholesale beef values and a flood of buying activity at the retail level is putting more pressure on packers to keep fresh product available to consumers.
| 1) | Expanded trading limits are available in all livestock trade. This would allow live cattle and lean hog futures to move $4.50 per cwt in either direction and feeder cattle futures to shift $6.75 per cwt before markets are stopped for the second day in a row. |
| 2) | Open interest liquidation in live cattle futures has been limited over the last week. This continues to create evidence that even though prices have plummeted lower, traders are unwilling to abandon positions. | 2) | As expanded efforts are made in order to curb the spread of the virus, this will continue to impact normal life in all areas of the country, limiting widespread dining out activities, cutting food-service demand. |
| 3) |
Aggressive consumer buying of all meat products over the last week has helped to highlight pork cuts at the supermarket. This is expected to create additional short-term clearance of pork supplies in order to keep retail locations stocked.
| 3) | The inability to hold support levels late last week has created aggressive technical pressure across all lean hog contracts. This could spark additional widespread liquidation, which started during late January. |
| 4) | Bullish market arguments have been hard to come by over the last week, but it is important to remember that long-term meat and pork demand is expected to continue once the market panic has subsided. | 4) | Concerns that a COVID-19 outbreak within a packing plant could significantly disrupt the meat supply and availability to move market-ready hogs through the system is a legitimate concern. This will likely continue to keep prices under pressure early Monday morning. |
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