General Comments:
Cash cattle activity remains generally sluggish going into midweek with light trade developing in several areas Tuesday. Asking prices are expected to remain around $120 per cwt live basis and $200 dressed, but the overall movement in the cash cattle trade focused on wide trading ranges with some cattle trade hitting the top of last week's cash market prices. A market trend cannot be established by the movement of cattle Tuesday, but it does give an indication of the variability likely to continue through the market. Live cattle are reported sold from $110 to $120 per cwt, while dressed cattle ranged from $174 to $190 per cwt. The variability of cash prices over the last month has limited negotiated trade for the week due to extremely wide price swings. Given the limited packer capacity and continued backlog of cattle in feedlots, there seems to be little negotiation as there are only limited spots to be filled and feeders have the option to take them or packers will move on to other willing sellers. This could keep prices variable within wide trade ranges over the near future. Futures trade is expected to focus on the early week support as longer-term supply tightness is expected following the recent pullback in feeder cattle supplies to feedlots. The limit gains in feeder cattle Tuesday is likely to renew buyer support midweek, while lending additional support to live cattle futures. Wednesday slaughter is expected at 105,000 head.
Strong triple-digit gains during the last half of the trading session Tuesday sparked renewed underlying support through the complex. Although these price moves do little to change technical market direction due to the wide sideways market gaps in lean hog futures, the strong rally did move June futures above $60 per cwt for the first time in over two weeks. This threshold will be closely watched as July futures are nearing that level midweek following near limit gains in July trade on Tuesday. Little has changed fundamentally either in the lean hog complex, although the general perception that the worst may be behind us both in the hog industry and general economic downturn, could quickly spark renewed buyer support that has been hovering on the sidelines waiting for a green light to return to business as usual. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids steady to firm. Slaughter Wednesday is expected at 407,000 head.
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Limit gains in August feeder cattle futures Tuesday will spark access to expanded trading limits of $6.75 per cwt in all feeder cattle contracts. The significant reductions in placements in April, combined with lower placements through the year is putting more emphasis on future feeder cattle buying in order to restock the feedlot system through the end of the year.
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Double-digit losses developed once again in beef cutout values Tuesday as prices seem to be returning to a more realistic level over the last couple of weeks. Traditionally, beef market losses following the Memorial Day weekend is not a good sign for overall beef demand, but normal benchmarks seem to have limited usefulness at this point.
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Higher cash cattle prices last week with an average of $117.06 per cwt posted a gain of $4.75 from the previous week. This upward shift in the market is sparking renewed expectations of additional cash market support given that packers seem to be reluctant to reduce cash prices given the Department of Justice eyes closely watching every move done in the meat industry.
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There remains little connection between the cattle and beef markets as markets attempt to slowly recover during late May and early June. Futures, cash and wholesale beef values are not holding typical trading relationships, creating little confidence in the support of recent futures gains at this point.
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Firm gains in pork cutout values Tuesday is pointing to price stability as packers continue to focus on filling consumer demand through early summer months.
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Cash hog values have weakened during early week trade. The still enormous backlog of market-ready hogs available to packers is limiting the need to shift prices higher, especially following the long holiday weekend and short production week.
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Steady gains are seen in daily slaughter numbers. This is creating the expectation that further growth will be seen as more plant workers return.
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Despite the strong triple-digit gains early in the week, lean hog futures are deeply entrenched within a sideways market trend, with two to three days of strong triple-digit gains still needed to break through resistance levels. This could limit the upside market direction the next couple of weeks.
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