General Comments:
Following the pattern of the past few weeks, cash cattle trade started to develop Monday once again. Although overall volume was light in all areas and may not be enough to give a good market test, but Monday prices were steady to lower than last week's average. The few dressed deals in the North ranged from $152 to $155 per cwt, with live deals at $92 per cwt. If the market continues to hold at or near these price levels, this would indicate the first week since the COVID-19 pandemic has started where cash prices are below front-month futures prices. The erosion of basis levels over the past couple of months has been one of the most disappointing factors in the recent cattle market shifts. Weak basis levels could continue through most of the summer based on the backlogged cattle supplies and concern that beef demand may still struggle to show significant increases through the end of the year. Futures trade is expected steady-to-moderately higher with limited trade volume trickling into the complex as traders focus on end-of-quarter adjustments. The Fourth of July holiday demand could create a much needed spark in beef demand to start the third quarter. Price ranges in live cattle and feeder cattle appear to remain stuck in a narrow sideways pattern with little new market direction expected in the coming days, which would break out of the current pattern. Tuesday's slaughter is expected at 120,000 head.
Traders entered the week looking for needed market stability, which helped to post narrow gains in all contracts through the end of trade Monday. This same focus is expected most of the Tuesday session with traders appearing to be more focused on adjusting positions in front of month and quarter end, rather than searching for any significant or new market direction at this point. With markets closed Friday in observance of the Fourth of July holiday, trade volume is expected to remain sluggish through most of the week with traders already adjusting to lighter schedules as this is the first major holiday after restrictions have been lifted. Although activity levels are still nothing compared to normal Independence Day celebrations, there is hope of returning to a more normal holiday routine with strong meat demand over the weekend. With the fourth of July landing on the weekend this year, there could be additional consumer buying extended through the whole weekend. This has the potential to spark renewed pork buying as retail price levels have moderated over the past couple weeks from previous levels. Mixed trade is likely in the lean hog futures complex as the morning progresses, although the underlying tone of the market still remains bearish, the potential to add limited support to nearby and deferred contract prices could help sustain gains at the end of the month. Cash hog prices are expected $1 lower to 50 cents higher with most bids expected steady to weak. Slaughter Tuesday is expected at 471,000 head. No Saturday runs are expected due to the Fourth of July holiday.
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Light-to-moderate gains in boxed beef values Monday is helping to create some market stability following consistent price pressure over the last few weeks. The ability to establish support levels in cutout values will likely spark renewed buying in wholesale and retail levels during early July.
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Cash cattle trade started to develop Monday, posting even lower cash prices. This creates additional concern that further market erosion is likely in the coming weeks as basis levels continue to erode.
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Traders are focusing on the potential for moderate-to-strong beef demand over the Fourth of July Holiday weekend. A strong shift in consumer buying as beef prices have moved back from previously escalated levels could help to offset traditional demand pressure typically seen through the rest of the summer.
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Fourth of July is traditionally the last big push for beef demand for the summer. This is creating concerns that beef and cattle prices may continue to erode lower given the burdensome amount of cattle needing to be processed over the coming weeks and months.
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Lean hog futures continue to search for long-term support levels. The firm gains in nearby lean hog contracts Monday is creating the hope that renewed buying will develop through early July.
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Pork cutout values eroded lower Monday as concerns of sluggish post-holiday demand could put additional pressure on hog prices as well as overall pork cutout values. The limited demand in the food service industry will likely continue to keep pork values subdued.
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Continued strong slaughter rates are seen through the end of the month. This will continue to add consistency to the hog market as further slaughter disruptions continue to be a major concern and more COVID-19 cases develop in many areas.
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Limited packer activity expected over the holiday weekend with no Saturday slaughter expected, and Friday and Monday schedules expected to be reduced. This will greatly reduce the overall number of hogs slaughtered this week.
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