General Comments:
Cash cattle markets continue to weaken as the week progresses, despite the firm price support in futures trade. The significant amount of market-ready cattle in the pipeline that is expected to keep the industry under pressure through most of the summer is adding to the lack of negotiating power by feedlot managers through late June. It appears that there will be light trade trickling into the market on a daily basis, conforming to the trend seen over the past few weeks. This will likely limit any upside cash market support in the near future, especially if boxed beef values continue to slowly erode lower. Not that wholesale beef values have given back all of the premium built into the market over the last two months, it is uncertain just where support levels will develop as traders continue to focus on demand concerns. Futures trade is expected mixed to mostly higher with spillover buying likely in nearby contracts as August futures quickly bounced off support levels Tuesday, helping to bring more attention back to the cattle complex. But with nearby contracts still stuck in a moderate sideways trend, these triple-digit price swings do little to change the technical direction of the market. This could allow prices to swing back and forth within this range, causing additional wide price shifts, but essentially remain rangebound through the end of the month. Wednesday slaughter is expected at 122,000 head.
Firm gains in lean hog futures trade, which developed Tuesday, sparked some underlying market interest, although the ability to hold prices above early week support levels still remains in question. The reduction of pork in cold storage at the end of May helped to stimulate active support in all nearby contracts, but there growing question about pork demand. With August futures still flirting with long-term market lows seen early in the week, it is going to take much more than a strong one day shift higher to for traders to regain long-term market confidence. But given current price levels and the expectation that supplies will continue to tighten over the next several months, downside market moves seem to be limited, giving traders incentive to cover short positions at current price levels. Cash hog bids are expected $1 lower to 50 cents higher per cwt with most bids steady to weak. Slaughter Wednesday is expected at 471,000 head. Saturday runs are expected at 310,000 head.
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| 1) |
Sharp triple-digit gains in spot August live cattle futures Tuesday quickly put increased focus on the ability for traders to quickly and aggressively move back into the complex. This may quickly stimulate follow-through buyer support through the end of the week.
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Cash cattle prices continue to erode lower with packers still able to fill the active procurement levels with steady-to-lower prices. This continues to focus on the amount of cattle at market weigh, with limited options going into the hot summer months.
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| 2) |
Recent reductions in boxed beef values over the last three weeks is expected to create renewed short- and long-term buying from many wholesale and retail buyers as they rebuild stocks sold over the last couple of months. This should help to bring additional momentum to the currently pressured boxed beef values.
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Boxed beef values have still been unable to find strong support levels after moving below the pre-COVID levels. This is adding concerns of further market weakness based on eroding demand.
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Expectations of long-term market support through late 2020 and early 2021 is likely to help build buyer support at current price levels.
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Concerns of further pork demand by China given the growing tensions between the two countries may put additional pressure on the entire complex.
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Traders continue to focus on late-week reports in order to get a better indication of overall slaughter levels during May as well as a more accurate estimation of hog numbers in the country. These upcoming reports may create active position adjustments ahead of the release times Thursday.
| 4) |
Cash hog values continue to slowly erode lower with limited negotiating power by producers as packers deal with still burdensome levels of hogs available for slaughter even though plant speeds are returning to more normal levels.
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