Cash cattle remained sluggish most of Tuesday but by the end of the day limited light trade developed in several areas at $105 per cwt live basis. This is generally $4 per cwt lower than last week's live price levels and indicates a limited interest by packers with general plant slowdowns through the week and the upcoming lighter kill schedules surrounding the holiday weekend. Easter weekend traditionally is the one holiday where overall processing levels are significantly reduced on both sides of the holiday with holiday-related reductions planned both Friday and Monday. This adds to the already slowing pace of moving cattle due to two small-to-medium plants suspending production already, and increased absenteeism at most other facilities, limiting the amount of cattle packers can move through the system. More active cash trade is expected over the next two days, but the firmness in the futures market may not spark significant cash market gains given, but instead weaken basis levels from the current large levels currently. Futures trade is expected mixed to mostly higher early Wednesday morning. The limited volume on Tuesday due to contracts locked in limit gains is likely to create follow-through buying as well as attempts to cover positions as markets move higher. The thought that the coronavirus pandemic may be close to peaking has spurred strong buyer support through most markets, potentially establishing a well-defined market bottom early in the week. There still remains a lot of concern of how overall meat demand will rebound over the coming weeks and months based on the damage to the economy through the pandemic. This could add even more wide market swings through the rest of a potentially lightly traded week. Wednesday slaughter is expected at 110,000 head.
Limit gains Tuesday in April through October lean hog futures is sparking additional momentum in the complex this week. This will allow for expanded trading limits of $4.50 per cwt as traders try to build on the recent market support and technical shift in direction over the last two days. The hope that new coronavirus cases in the country have or are about to peak in the near futures is causing many traders to become more active and step back into the complex. This could be the springboard that markets need to move prices off long-term lows of $40 per cwt in the spot, but lightly-traded April contracts. April futures remain at a significant discount to the actively-traded June contracts as the focus of this entire pandemic has been on short-term demand erosion due to "social distancing" and the impact the virus has had on daily schedules over the last month. It is still uncertain that when continued recovery measures are taken, just how quickly and consistently buyers will return to the market. Increased volatility could occur if there are wide market swings in either direction. Cash hog prices are called steady to $1 lower with most bids expected steady to $1 per cwt lower. Slaughter Wednesday is expected at 483,000 head. Saturday runs are expected at 54,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Extreme basis levels continue in cash cattle markets. With current cash prices still $20 over April live cattle futures, compared to a more normal basis of $2 to $3 per cwt. Cash cattle basis levels last year at this date were $1.75 per cwt over the April contract price. | 1) | Cash cattle trade started to shift lower once again this week with light trade at $105 per cwt live basis. This could bring about further cash market weakness through the rest of the week due to limited buying by packers |
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Extreme price support in futures trade the last two trading sessions is helping to change trader expectations for the cattle complex and potential upward market shifts possible in the near future.
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Continued pressure in choice boxed beef values this week is putting more emphasis on the change in consumer buying patterns through the last month. Although the changes are expected to be temporary, it is still uncertain what the shifts in unemployment and economic status will do to beef demand in the coming months.
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Limit gains Tuesday has allowed for expanded trade limits midweek. This may add increased strong buyer interest in the complex as traders look for increased potential to re-own contracts following eroding open interest over the last month.
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Continued pressure in cash hog prices and pork values is causing some concern on a fundamental level despite the aggressive shift higher in futures trade. This could limit longer-term support and price gains in the near future.
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| 4) | There is a hope that better times are ahead concerning the coronavirus and its paralyzing effect on the economy and daily lives, which is creating hope that business may return to normal in the near future. | 4) |
The wild price moves during the week is expected to increase price volatility in light trade the rest of the week. With markets closed Friday, limited trade volume may be seen in the upcoming days, allowing markets to have even more price shifts due to the limited amount of traders involved in the market.
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