As expected, cash cattle activity remains dead in the water following lackluster interest from both sides Monday. Cash cattle trade is not expected until later in the week, with some questions about whether active cash market trade will develop this week. Concern continues about COVID-19 impacting the production levels at packing plants. Even though the meat packing industry is considered an essential industry, the increased cases of workers at these plants continues to be a significant challenge and a tricky balance between keeping the nation fed and keeping employee's safe. This will continue to challenge the supply system with ample cattle available to be processed, and strong retail demand at stores across the nation. But the concern is the processing and transportation industry, which links the process between livestock producers and consumers. Traditionally, this massive and complex system of processing live animals into table-ready meat products works seamlessly with very few people giving it a thought. But this has all changed over the last month as the coronavirus has impacted one of the most complex systems in agriculture. Mixed trade is likely to Tuesday morning as outside market pressure is redeveloping. The aggressive losses in expiring May crude oil futures has pushed the May contract to negative price levels for the first time in history. Many never even thought this was possible. The focus in crude oil is on the actively traded June contract, but sharp losses near $4 per barrel is showing increased weakness in the complex. The sharp rally in beef values Monday may have limited impact on futures trade as growing uncertainty of packer activity may further pressure cattle prices. Tuesday slaughter is expected at 95,000 head.
Strong early week gains have developed in lean hog futures trade as the industry focuses on additional processing challenges with another pork plant stopping production due to an outbreak of the coronavirus. The strong surge in pork values the last two days has continued to be the main driver in futures trade early in the week, although the continued pressure from reduced processing levels may start to disrupt the futures market optimism. With JBS closing the Worthington Minnesota plant indefinitely due to a COVID-19 outbreak, this will reduce processing numbers by an additional estimated 20,000 head per day. The expectation is that many of these plants were not able to run at full capacity due to lack of employee's may limit the impact, but the lack of processing capacity will still be significant. Cash hog values are expected steady to $2 per cwt lower with most bids expected $1 per cwt lower. Slaughter Tuesday is expected at 409,000 head.
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| 1) | Wholesale beef values surged as concerns of limited beef supplies pointed to aggressive market gains in choice and select cuts. | 1) | Even though wholesale beef values have surged higher due to expected tight supplies, it is uncertain if these gains will be carried through the retail pricing system given the concern of limited beef available in the future and tight food supplies. Given the early and swift actions surrounding "price gouging" in the last couple of months on items such as toilet paper and hand sanitizer, it is uncertain if many retailers will adjust meat prices higher to account for the higher wholesale costs at this time. |
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The higher values in beef values is likely to push toward higher cash market prices at the end of the week, especially if live cattle futures can stabilize through the upcoming days.
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The inability for packers to run, or run at full capacity continues to be the weak link. Until coronavirus cased are reduced within employee populations, the inability to keep active schedules may remain limited.
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Aggressive futures gains held Monday in lean hog trade, creating a bright spot in a bearish outside market picture. This could spark renewed commercial and investment buying in a market that very well could be rebounding from long-term lows.
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The closure of JBS's Worthington plant is another blow to the processing system. This will further back up live hog supplies with many-market ready hogs unable to find a processing home over the near future.
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| 4) | Pork values have surged higher each of the last two trading days. This is helping to put more focus on the underlying support in the complex and potential upward support in pork demand. | 4) |
The strong triple-digit gains in lean hog futures Monday may spark increased and widespread market volatility in the coming days. Wide price swings typically lead to additional wide market moves in the other direction, causing additional widespread concerns through the entire hog complex.
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