Cash cattle interest is still in the concept phase at this point of the week with increased showlist levels on Monday being no surprise after weeks of light buying by packers, which are struggling to keep the packing speed at the current levels. The concern that additional packing plants may either have reduced processing levels or close due to COVID-19 will continue to be the main concern over the near future. Monday's surge higher in wholesale beef values posted gains of nearly $20 per cwt in choice and select markets. The widening spread between cash and wholesale prices remains extremely concerning, but the focus on higher beef values has sparked underlying support to develop in futures trade early in the week. The surging wholesale meat values also remains a significant concern for long-term market direction. At this point, there is little indication that retail price levels have followed the recent move in wholesale prices higher over the last month. There are questions if prices will be able to adjust higher to cover boxed beef gains, or if retail price levels do surge higher, will demand evaporate. Given the growing number of unemployment and economic concerns, the ability to maintain strong retail beef demand will be essential once the packing industry is able to move back to a more normal pace. Firm follow-through support is expected in nearby futures early Tuesday, but continued uncertainty may limit stability as the day continues. Tuesday slaughter is expected at 89,000 head.
Lean hog futures surged higher Monday, hitting limit gains of $3.75 per cwt. The new trading limits are still taking some getting used to, but with expanded limits available and prices to move $5.50 per cwt through the Tuesday session, limit gains make the adjustment much easier to adjust to the changes that limit losses. The lean hog complex still continues to face major challenges as traders focus on potential direction to potentially open plants in the coming days. There seems to have been a change in the narrative the last several days with more and more focus on the importance of keeping plants running as much as possible, and plants already closed back into production. The focus on depopulating hog herds continues to gain traction. Although the pinch point right now is on market-ready hogs, there is likely to be a combined focus on depopulating both piglets and market-ready hogs, depending on farm situations. Others appear to be adjusting to slowing gains on hogs in the system in order to either hold market-ready hogs for the time being, or push off slaughter as much as possible. Any reduction in herd size is currently being viewed as bullish to the market, as these adjustments will take weeks or months to determine just how many hogs have been affected, while limiting short- and long-term supplies, tightening pork supplies the next several months. Slaughter Tuesday is expected at 345,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Surging wholesale beef values has continued to focus on the potential tight supply of meat due to limited packer availability. This started to spark renewed interest in futures trade with strong triple-digit support moving through nearby live cattle trade Monday. | 1) | The surging support in wholesale beef values continues to not only create a disconnect between wholesale beef values and cash markets, but the limited movement higher in retail prices to date may limit the ability to for wholesale boxed beef prices to maintain current levels. |
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Strong meat demand at retail locations is expected to continue as the concern of tight supplies due to lighter packing plant operations will continue to be the focus in the meat industry over the near future.
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Even though there continues to be efforts to reopen businesses over a scheduled time period, the current pressure in food service demand may take weeks or months to rebuild. This will continue to limit the movement of higher value beef products through the system, which has essentially shut down over the last several weeks.
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| 3) |
Although devastating to producers, the continued talk of euthanizing hogs is sparking widespread market support as this will directly and quickly change the market supply situation of not only market-ready hogs, but potential long-term supplies through the fourth quarter of the year.
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Limit gains Monday is allowing for expanded trading limits Tuesday of $5.50 per cwt. The volatility in the market could easily spark widespread moves that could break away from current fundamental moves through the complex.
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| 4) | Limit futures gains sparked widespread buyer support Monday. The changing focus on the need to put even more focus on keeping production lines open in order to supply consumer needs is gaining widespread attention in futures trade. | 4) |
The growing focus on euthanizing hog herds due to lack of processing outlets is creating additional uncertainty through the complex. This would have a devastating effect on individual producers, some who would likely not be able to recover from the losses.
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| #completecalfcare |
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