General Comments:
Limited cash market direction is expected early Monday morning, although the trend of daily trade over the last few weeks makes it a strong possibility that at least light trade will trickle into the market by the end of the day. Both sides are focusing on the release of sales totals and price levels Monday following another week of wide trading ranges. Even though cash prices last week were lower, it is still uncertain just how much lower the average prices will land given the wide trading ranges last week. At this point, there is no reason to believe that the wide trading ranges that slowly flow into the market during the entire week will not continue as packers and feeders seem to be getting away from the idea of holding out and then making one big sales surge at the end of the week. It is still too early if this trend will change for good, or if cash market activity will move back to a more normal level as the industry moves away from the coronavirus pandemic. Even though live cattle and feeder cattle prices weakened firmly Friday, live cattle futures are unable to break out of the narrow sideways market trend near $95 per cwt, which continues to limit market activity. With ample cattle available for packers and uncertainty of how aggressive beef demand will be through the rest of the summer, the short-term upside market potential appears to be limited for the time being. The main focus is on late-year activity when supply tightness is expected to create some underlying concerns through the entire complex. Monday slaughter is expected at 119,000 head.
July futures take over as the official front-month contract following the expiration of June contracts last week. This moves the target price level of July futures hovering just above long-term support levels of $50.97 per cwt set in April. The concern that continued strong pork production and sluggish domestic and export demand may limit nearby contracts from finding strong buyer support through most of the summer could add additional softness in all nearby contracts. Although July futures still remain relevant in pricing cash markets, the swift move by traders into the August trade over the last couple of weeks has caused August futures to hold the most active open interest. This will continue to put more emphasis on trade in August contracts and likely increase the pace at which traders roll contracts out of July futures over the coming days and weeks. Support in lean hog futures has been seen in late 2020 and early 2021 contract months. At this point, it is expected to be well into 2021 before firm support is seen in the lean hog complex as the industry will remain slow to work out of the current production glut that developed well before coronavirus issues wrecked the market. Cash hog bids are expected $1 lower to 50 cents higher per cwt higher with most bids steady to firm. Slaughter Monday is expected at 454,000 head.
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Expectations of increased retail and food service demand through early June even though retail prices have remained high is creating hope that demand support may break away from traditional summer dips as consumers return to more normal buying patterns.
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Limited short-term market support in early June is establishing nearby live cattle prices well below $100 per cwt. The inability to move prices out of the current sideways trading range over the near future could limit short- and long-term growth.
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Renewed volatility in financial and stock markets over the last week is likely to create additional support for traders to move back into commodity markets. The cattle complex remains ripe for additional buyer interest as noncommercial traders focus on food demand investments.
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Boxed beef values continue to erode during the month of June. Although the intensive losses have eased, the inability to stabilize beef values will add further weakness through the entire complex.
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Firm gains in deferred lean hog futures trade continues to focus on the potential for long-term growth in the lean hog complex. This could bring additional activity into late 2020 and early 2021 contracts, setting the pace for strong market support in the coming months.
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July lean hog futures remain vulnerable of breaking through long-term support levels of $50.97 per cwt. A move below these levels during the week could spark renewed liquidation, opening the potential to move prices significantly lower as there remains little resistance until $40 per cwt.
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| 4) |
Pork cutout values have stabilized over the last several days, creating the potential for additional long-term buyer support moving into the market during the summer months.
| 4) |
Continued long-term concerns about export trade with China may quickly limit the ability to entice short-term buyers back into the lean hog complex.
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| #completecalfcare |
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