Limited early direction is expected in cash cattle trade with bids likely to remain quiet through most of the morning. Although the Fed Cattle exchange is expected to trade during the morning with another strong run of cattle offerings, but it is unlikely to create underlying market direction for the week given the wide moves in futures and beef values over the last couple of days. Asking prices are expected to remain at $120 and higher live and $190 and higher dressed basis, but the swiftly eroding beef cutout value is likely to limit additional underlying pressure through the end of the week if wholesale beef prices continue to shift lower. Choice cutout values, which fell $7.82 per cwt Tuesday posted a record loss as growing concerns of overall beef demand may continue to erode through the upcoming weeks as the coronavirus pandemic continues to take hold of the nation. No amount of increased ground beef sales in the retail market can make up for the losses of high value beef cuts in both the retail and food service sector. Active cash market trade may be delayed until the end of the week with the focus on further moves in beef values and futures activity through the first few days of April. Futures trade is expected mixed to mostly lower as traders adjust to a new month and quarter on the books. The surge in futures prices Tuesday had more to do with end-of-the-month and quarter positioning than establishing market direction, which is likely to add even more volatility to the current complex. With strong open interest liquidation seen during the month of March, the focus on regaining buyer interest during early April as traders prepare for what could be another volatile and uncertain couple of months, is creating the potential for wide market swings in the near future. Wednesday slaughter is expected at 121,000 head.
Growing pressure in spot April lean hog futures through the end of March and continued wide pressure in pork cutout values is adding to the already weak market structure as traders enter the month of April. Although moderate-to-strong buyer support developed in deferred futures and late 2020 and early 2021 contracts took advantage of expanded trading limits, the general tone of the market remains weak given the softness in fundamentals and growing concern that further demand erosion may develop in the weeks and months to come. Aggressive triple-digit losses in pork carcass values combined with unified pressure in beef values is causing concerns that the recent surge in retail buying activity during the middle of March is unlikely to be sustained as consumers get into a more normal pattern of supplying meat and food sources over the coming weeks. Cash hog prices are called steady to $1 Lower with most bids expected $1 per cwt lower. Slaughter Wednesday is expected at 495,000 head. Saturday runs are expected at 150,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Limit gains in June live cattle futures will allow for expanded trading limits through live cattle futures Wednesday. The strong rally higher through the end of March allowed for buyers to step into the complex as they adjusted first quarter positions. | 1) | Boxed beef values posted record one-day losses Tuesday in choice and select cuts. The shift lower in beef values started late last week and is building momentum as concerns of sustained beef demand is pulling back from recent highs. |
| 2) | Extremely 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) | Expanded trading limits in live cattle futures, given the underlying weakness in outside markets during overnight trade and recent pressure in beef values may allow for wide market losses early Wednesday. |
| 3) | Strong triple-digit gains seen in deferred summer and winter contract months points to strong, long-term buyer support rebuilding in the lean hog complex. This is focusing on the short-term impacts of COVID-19, with hopes of salvaging the last half of the marketing year. | 3) | Spot April lean hog futures set contract lows once again Tuesday, creating concerns that additional short-term pressure will hold nearby lean hog futures trade lower in the upcoming weeks. |
| 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 the next three months, which may help to regain market momentum through the rest of the year. | 4) | Strong losses in cash and wholesale pork cutout values is creating fundamental weakness in the lean hog complex. Concerns that Easter demand will be disappointing due to limited travel and family gatherings this year is likely to add even more weakness to the complex. |
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