General Comments:
Limited cash cattle trade slowly developed in the North on Tuesday with prices in a huge range from $145 to $170 per cwt. With most of the light trade volume reported at $150 per cwt, which is generally $1 per cwt lower than last week's average. Additional trade is likely in all areas, but given the uncertainty in the market, and continued sluggish pace of packing plants, active trade may be limited and additional sales could slowly trickle in through the upcoming days. A few cattle were reported sold in Kansas, with prices near $95 per cwt, but there wasn't enough cattle sold at this point to establish a good market trend. Futures are called mixed to mostly lower. Although the surges in boxed beef values have sparked underlying commercial and noncommercial interest into the complex the last couple of weeks, the significant disconnect between live cattle prices and wholesale meat values will likely add increased pressure to the complex. Until increased packing availability is seen, and at least a portion of the backlogged cattle in feedyards move through the system, the likelihood of consistent buyer support is limited in cash and futures markets. Wednesday slaughter is expected at 79,000 head.
Underlying pressure redeveloped in lean hog futures trade Tuesday as the reality that packing plants are a long way away from normal production capacity. The focus in the market has moved away from the support last week of President Trump's executive order to keep packing plants open to reports of test results from plants that are showing significantly high COVID-19 levels in plants. Growing reports that a number of these positive results are asymptomatic (showing no symptoms of the virus) is also creating concerns about the effectiveness of tracking workers who may be exposed, as temperature readings and normal screening procedures seem to have limited results in this group. But ultimately the large amount of packing plant workers who have been affected by the virus continues to significantly impact the ability to keep plants running at an efficient level even if plants do stay open. It takes many well-trained workers to efficiently process meat in order to keep the system running. The significant pressure in summer and fall contracts is focusing on the potential that this may be a much longer ordeal than previously thought, as July and August futures took the brunt of selling pressure Tuesday and could see increased weakness midweek. Cash hog bids are expected 50 cents lower to 50 cents per cwt higher with most bids steady to weak. Slaughter Wednesday is expected at 296,000 head. Saturday runs are expected at 195,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Strong retail demand continues to be the focus as wholesale meat values surge higher. This is leaving limited supplies, but helping to create expectations of higher prices once packing plants can increase throughput. | 1) |
The continued gap between live cattle and meat markets as packers struggle to keep plants open will likely widen the gap between live cattle prices and wholesale beef values, and likely create additional uncertainty in consumers.
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| 2) |
Feeder cattle futures continue to hold recent support extremely well as prices have moved well above recent support levels and are trading nearly $14 per cwt over long-term lows set in March. The limited space in feedlots is not creating significant pressure in nearby of deferred contracts at this point.
| 2) | Limited slaughter numbers will continue to have a direct impact in cattle being bought by packers, likely impacting cash cattle values significantly through the near future. Increased packer activity will likely be the only way that increased cash buying and significantly higher cash values are seen. |
| 3) | Despite the pullback in prices Tuesday, the recent market rally last week is able to hold technical support levels, sparking the expectation of follow-through buyer support in the near future. | 3) | Continued pressure in packing capacity is seen with increased production suspensions and limited production at plants that are coming back online. This will continue to likely keep daily slaughter levels well below 300,000 head per day. |
| 4) |
Despite challenges in getting packing plants running at efficient manners, the hope that recent changes to processes made at most plants will help to create long-term processing stability and quickly move hogs through the already backlogged system.
| 4) |
Sharp losses Tuesday has the potential to bring about follow-through selling pressure. This could erode previous futures market support, which developed the last couple of weeks.
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