General Comments:
Limited activity is expected on Monday in cash cattle. The morning release of last week's average cash cattle price levels will be watched, although the expectation is that cash cattle will remain slightly higher than the previous week. Upward momentum in cash cattle prices seems to have been stalled through late July. This has the potential for markets to revert to a choppy but narrow pattern through the rest of the summer. After the anticipation of the Cattle on Feed report and Cattle Inventory report, which was released Friday afternoon, there may be some "post-report sluggishness" as no major surprises were seen in the report. Cattle on feed numbers came in pretty much where expected with total cattle inventory steady with last year, and within a fraction of a percent of estimates. Placements increased 2% from year-ago levels, which is below estimated levels but not likely enough to make significant market direction changes Monday morning. Beef cow inventory as of July 1 fell 1% from year-ago levels. This does indicate an end of beef herd expansion seen over the last several years, but the amount of reduced cows in the nations beef herd is well short of market expectations, creating what is likely to be a more stable cattle supply over the next year. Calf crop levels also shifted 1% lower, indicating that some supply tightness is expected through the upcoming months, but this is not expected to create significant bullishness through the complex. Steer numbers and heifers in the "other" category increased 2% and 1% respectively. This focuses on the backlog of cattle in the system following COVID-19 issues in the industry. Although the number increased from year-ago levels, this comes in well below estimates. This is expected to be viewed slightly bullish as it indicates that backlog still exists but is not as strong as expected by many in the industry. Futures are expected to open mixed in light-to-moderate trade. The shifts on Friday are likely to add some post-report adjustments in the complex, which may limit additional support volatility, at least in the first couple hours of trade. Monday's slaughter is expected at 119,000 head.
Lean hog futures continue to hover within a sideways trading range as October contracts are taking over as actively traded contracts, finding limited ability to break out of the choppy pattern seen the last couple of months. There seems to be moderate support holding at the $50 per cwt price levels, but the inability to bring active buyers back to the table given uncertainty with China as well as currently large hog supplies could leave prices struggling to break out of this pattern the rest of the summer months. This could add increased volatility, especially in deferred contract months as traders look for tighter supply levels through 2021. But currently the pork demand situation continues to be the main wildcard in the hog complex, as it has been very hard to measure just how well pork demand will bounce back through the remainder of 2020 and early next year. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Monday is expected at 475,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Feeder cattle placements during the month of June increased 2% from year-ago levels. This is below the estimated levels of 3.6%. The lower-than-expected placement levels is likely to spark limited buyer support in the feeder cattle complex as traders look for tighter-than-expected cattle supplies through the end of the year.
| 1) |
Beef cow inventory as of July 1 fell 1% from year-ago levels. Although it indicates a reduction in herd size, the pace at which the beef herd is shrinking is well below expectations.
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| 2) |
Total steer and "other" heifer inventory levels as of July 1 increased from year-ago levels but was below analysts' estimates. This indicated that although there remains a backlog of cattle, the buildup is not as large as previously expected, likely helping to spark increased support through the complex over the coming weeks.
| 2) |
Limited changes in cattle inventory from year-ago levels and pre-report estimates is likely to limit early buyer support through the complex as traders remain uncertain about supply levels tightening significantly over the next few months.
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Firm buyer support in deferred lean hog futures trade continues to widen the premium in between current prices and values through 2021. This is focusing on expected demand support through early 2021, helping to work out of the market rut across the complex.
| 3) |
Despite the recent strong gains in cash cattle trade, the national cash hog price remains just under $38 per cwt. This continues to focus on the significant discount between lean hog futures prices and the CME lean hog index. This could keep cash values depressed for the near future.
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| 4) |
Cash cattle trade surged higher Friday, increasing $2.88 per cwt. This support is expected to help carry buyer interest into Monday's trade, focusing on the need for packers to become more aggressive in sourcing market-ready hogs.
| 4) |
Growing uncertainty about where the relationship with China will go over the coming weeks and months will add even more concern through the hog complex as China continues to be a major importer of pork even due to the tensions.
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| #completeherdhealth |
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