General Comments:
Light trade in the South Tuesday near $96 per cwt combined with early indications of sales in Nebraska Monday at $157 per cwt may be enough to start establishing a market trend for the week. Current price levels would put cash markets steady to $1 per cwt higher than last week, although there still needs to be a lot more business done in most areas before the end of the week. The expectation that some trade may be delayed until the end of the week and after the Cattle on Feed report could put more focus on late week developments despite the early week activity. This week is full of reports that will impact the cattle market with the monthly Cold Storage report released Wednesday, while the biannual Cattle Inventory report and Cattle on Feed report will be released Friday. No big surprises are expected in the Cold Storage report as packer production is becoming more regular compared to the previous month. The Cattle on Feed report and the biannual Cattle Inventory report will focus on cattle in feedlots, overall herd size levels and overall inventory. The inventory report will likely be the main focus during the week, although this report typically has little short-term impact in price levels due to the long-term and "herd size" direction of the report. But even if there are no big surprises, crunching numbers will keep traders and analysts busy over the next week. Futures are expected to remain mixed in a limited market range. Prices continue to hover near recent highs, establishing a well-entrenched path near the top end of short-term resistance levels. The ability to keep prices within this market range despite traditional summer pressure is likely to point to underlying firmness through the upcoming fall months. Wednesday's slaughter is expected at 120,000 head.
Firm gains have developed through lean hog futures on Tuesday with the growing support in pork cutout values and cash market prices sparking underlying support through all nearby and deferred futures. With August futures still prevalent on the board, October has taken over as the most actively traded contract, but the balance between the two contract moves continues to be closely watched. The ability for October futures to hold price levels above $50 per cwt will be a psychological factor, despite limited technical or chart significance at this price level. August contracts are interesting to watch at this point, as this contract is being used to determine the daily trading limit over the next year. New daily trading limits will be set at 4% of the average August contract price in the last 45 days of trade. This means that price levels through July will be used in this calculation. With current price levels, the daily trading limit would be somewhere near $2 per cwt, compared to the $3.75 per cwt limit currently in place. The most significant factor in this change is likely to be the increased ability for expanded trading limits being seen in the coming year, even though price limits will be lower than in the past. Cash hog prices are expected to be $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Wednesday is expected at 475,000 head. Saturday runs are expected at 226,000 head.
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Nearby live cattle futures continue to hold near four-month highs, as the expectation that supply tightness will slowly start to develop over the coming months. The expectation that feedlot numbers will be at or below year-ago levels is helping to keep buyers intently watching for a positive market shift.
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Cash cattle trade continues at a strong discount to nearby futures trade. Current cash prices are at a $10 discount to October futures. The abrupt change in cash basis levels over the last six to eight weeks, and discount that may last well into fall months is likely to limit market support through most of the year.
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Boxed beef prices are expected to be nearing the seasonal low, with traditional lows seen in late July. This is expected to increase support based on potential follow-through support during the fall and winter months in consumer demand.
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Estimates of feeder cattle placements in June is pegged at 103.6% of year-ago levels. This is not a significant surprise, given the disruption in the market over the past few months, but this will continue to add feed cattle supplies to the market during the first quarter of 2021, limiting long-term price support.
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Firm commercial buying in nearby and deferred lean hog futures continues to spark renewed interest. Although prices remain stuck in a technically sideways pattern, the focus on holding price levels above $50 per is drawing traders back to the market who have been watching from the sidelines for months.
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Despite renewed interest in wholesale pork prices and cash hog values, limited upward market support has been seen in nearby lean hog trade. With prices hovering just above $50 per cwt, and $2 to $4 per cwt over long-term lows, the concern is that prices could remain in this range through most of the fall months.
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Aggressive market gains in both cash hog prices and pork cutout values Tuesday is sparking expectations that additional fundamental support may develop across the complex. This may add increased overall buyer interest as the week continues based on additional pork value support.
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Increased COVID-19 cases are adding concerns about the ability to maintain current pork production levels, as well as sustaining demand for pork through the end of the year. Packers continue to struggle to maintain adequate labor supplies, which will likely become a bigger issue through the next couple of months.
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| #completeherdhealth |
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