Although there still is a lot of cattle to trade in the cash cattle arena before the end of the week, the sharp losses Wednesday are expected to set the tone for the market. Light trade developed in several areas through the day Wednesday with live Southern trade falling generally $7 per cwt from last week at $112 per cwt, while dressed deals in the North are reported at $180 per cwt. This is $9 per cwt below last week's average cash price. The potential for additional futures market weakness is likely to add follow-through pressure in cash trade as the week continues. This could significantly limit the amount of cattle sold through the week. Additional sharp losses in boxed beef values midweek has started the landslide of price shifts lower as traders remain concerned of further demand erosion. As consumer buying patterns are becoming more regular after the panic buying and hoarding that pushed beef values through the roof during March, the focus on a generally shuttered food service industry and the lack of beef demand in that market space is starting to create the reality that product may continue to be backed up over the near future. Futures trade is expected mixed in light early trade Thursday with live cattle and feeder cattle having access to expanded trading limits. This would limit live cattle at $4.50 per cwt once again, while feeder cattle limit will be set at $6.75 per cwt. The strong overnight support in financial markets could help to soften the blow, but the underlying fundamental weakness in the complex continues to spark uncertainty in the complex. June futures have the potential to test long-term support and contract lows, which could spark renewed volatility though the end of the week. Thursday slaughter is expected at 119,000 head.
The combination of technical and fundamental pressure redeveloping across the hog market in the last week has added increased volatility to the complex. Expanded trade limits of $4.50 per cwt are available in all lean hog contracts, as nearby contracts have already broken below support levels and are starting out at contract low price levels. The sharp shift lower in cash hog prices and pork values Wednesday created another layer of bearish news in the already weak market structure. Little trade will take place at these depressed market levels, but the inability to sustain significant buyer support through the end of the week will further reduce open interest and create challenges on follow-through weakness in the complex through the first part of April. Cash hog prices are called steady to $3 lower with most bids expected $1 per cwt lower. Slaughter Thursday is expected at 495,000 head. Saturday runs are expected at 142,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Long-term demand support is still expected once the impact of coronavirus passes. This could allow for a strong comeback in both meat values and beef prices through summer and fall months. | 1) | Expanded trading limits in all cattle trade available Thursday has the potential to push nearby live cattle futures below recent support levels, setting new contract lows. This could add even more pressure to the complex in the coming days. |
| 2) | Strong basis levels continue to hold in cash cattle trade during early April. This is expected to create additional focus on basis opportunities for producers who have hedged live cattle ready for market. | 2) | Eroding beef demand is creating significant losses in boxed beef values as consumer buying patterns are quickly changing as they focus on the potential for cutting back consumer spending over the near future. |
| 3) | Summer lean hog futures continue to hold strong price premiums to spot April contracts. This is putting most of the pressure on near-term contracts with the focus on short-term demand losses for pork. | 3) | Aggressive triple-digit losses in cash hog prices Wednesday sparked a change in direction in packer buying interest. This may lead to additional cash market softness as packers seem to be less actively searching for hogs as plant margins start to quickly erode. |
| 4) | Given the intense market liquidation through the month of March, traders are looking ahead to the second quarter. This has the potential for significant market gains over the next three months, which may help to regain market momentum through the rest of the year. | 4) | Expanded limits of $4.50 per cwt are available in all lean hog futures contracts. This could quickly add increased weakness to the entire market as traders brace for increased pressure in pork fundamentals through the upcoming days and weeks. |
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