The wild surge in cash cattle prices last week is expected to create a sense of hope that renewed interest will quickly move back into the complex. The tone of cash cattle markets last week were set before the strong pullback in futures trade. With markets well off long-term lows set during the middle of March, the focus on rebuilding long-term support and a continued need to keep packer lines active in order to meet current demand is expected to keep feedlot managers optimistic through the first few days of the week. Bids are unlikely on Monday with the focus on inventory and showlist distribution the main priority through most of the day Monday. The general tone of the cash market last week posted live prices in the South gaining $9 to $10 per cwt, while dressed business in the North was mostly $17 per cwt higher. The limit losses at the end of the week not only heavily impacted cattle trade, but quickly sent a message through all livestock futures that unchecked gains from the previous week would not last. Even though it is likely that support levels set during the middle of the month are not in danger, there are growing concerns that overall meat demand may not continue at the aggressive pace in March when retailers were scrambling to keep product on shelves. The expansion of coronavirus cases in the U.S. over the weekend has been incredible, creating even more concern that this will heavily impact consumer activity over the long term, not to mention the food service industry, which has essentially been brought to its knees through the virus pandemic. Expanded trading limits are available in all cattle markets with live cattle once again able to move $4.50 per cwt in either direction before markets are halted, while feeder cattle futures are limited to a $6.75 per cwt market move. The potential of firm buying support in outside markets could quickly cause moderate short-covering to move back into the cattle complex through morning Monday, but this support could be slow to develop. Monday slaughter is expected at 121,000 head.
Lean hog futures are stuck in a reactionary mode as traders count the days until the end of March. The month of March will go on record as one of the most volatile trading months in recent history, with prices swinging back and forth from $53 to $66 per cwt as overall consumer demand changes have impacted overall market direction the last four weeks. Hog markets will continue to be impacted as more and more "stay home orders" take place throughout the country. Retail locations seem to have regained inventory control of most meat supplies, but now the concern is about how much overall demand will be lost due to scaled back Easter plans and limited demand in the food service sector in the next few weeks. This will likely have a significant impact on the higher values meat cuts, limiting overall carcass values. Cash hog prices are called $1 lower to $1 higher with most bids expected steady to $1 per cwt lower. Slaughter Monday is expected at 496,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Sharp gains in cash cattle trade last week will create hope that follow-through support can develop as the volatility in futures trade stabilizes the next couple of days. | 1) | Open interest in cattle futures continues to erode through the month of March. Even though strong price support returned the last couple of weeks, continued liquidation in the market has developed. This is causing concern as higher prices typically cause open interest to quickly rebound, but so far this has not been the case. |
| 2) | Despite the pullback in futures trade at the end of last week, wholesale beef values have held onto support extremely well. The continued surge in retail demand the last couple of weeks continues to move product off store shelves at a rapid rate. | 2) | April live cattle futures have lost $7.50 per cwt over the past two trading sessions with expanded limits creating the potential for additional wide losses to redevelop Monday. The inability to hold midweek highs is causing significant concern about short-term market direction. |
| 3) | Strong pork demand continues in late March. It is expected that with more families home and confined from traveling, there will be increased focus on smaller but more Easter celebrations, which is likely to spark additional ham buying activity in the upcoming days. | 3) | Sharp losses developed in pork cutout values late last week, causing concern that additional meat value erosion may continue to develop through the end of the month. The inability to continue to actively move pork supplies through early April could significantly damage previous support built the last couple of weeks. |
| 4) | Long-term support in nearby lean hog futures is safe for now, despite the strong pressure in futures trade late last week. This could continue to limit further liquidation through early April as noncommercial traders look for investment opportunities. | 4) | Expanded trading limits are available in lean hog futures trade for the second consecutive trading session. This may put additional pressure on lightly traded nearby April and May contracts, which continue to trade at a significant discount to the most active June contract. |
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