General Comments:
Limited cash cattle trade started to develop Tuesday, but the focus on higher price levels is sparking some expectations of further support as the week continues. Light trade took place across the South Tuesday at $97 to $97.50 per cwt. This is generally $1 to $2 per cwt higher than last week's price levels in these regions, creating a firm undertone as feeders hold to elevated asking prices of $100 per cwt live and $162 per cwt dressed. Although there still needs to be quite a bit of trade yet to develop, these price levels and a firming market trend will likely go a long way in driving prices higher through the end of July. Futures trade is expected higher as follow-through buyer support is steadily moving back into the market. The inability for early week losses to regain any sense of momentum Tuesday indicates that the abrupt move lower on Monday was an opportunity for many traders to readjust positions in what could test July resistance levels in the upcoming days. Currently live cattle futures remain in the top end of a wide sideways market trend, with a move above $106.60 per cwt in October futures triggering a breakout shift to the upside. Although there continues to be concerns of lackluster beef demand growth surrounding growing coronavirus numbers, the focus of tighter cattle supplies through the end of the year is likely to leave markets less restricted to upside market potential over the coming days and weeks. Wednesday's slaughter is expected at 118,000 head.
Lean hog futures are expected mixed in sluggish morning trade Wednesday. Although daily slaughter expectations continue to hover around the 475,000 level day after day, the amount of revisions is slightly concerning, as revised slaughter numbers in the hog market seem to be a daily occurrence. A combination of labor and mechanical issues at plants adds up to lower production, but the fact that early estimates of production seem to be rather aggressive day after day could have more to do with the need for revisions, than reductions in plant expectations. The interesting thing is that even with the amount of revisions seen, futures and cash markets seem to be taking these moves in stride with no significant impact on price levels. The focus on continued large numbers of market-ready hogs available to the market, while packer margins remain strong, is allowing packers to remain aggressive and push for higher production levels even with the current challenges. The price spread between nearby and deferred lean hog contracts continues to focus on uncertain pork demand through the end of the year while traders focus on the ability to work through the current glut of hogs in the market. This will keep nearby October contracts hovering just above the $50 per cwt price levels, while spring and summer 2021 contracts are holding strong premiums of $10 to $25 per cwt based on tighter supplies in the new year. Cash hog prices are expected $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 near 186,000 head.
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Firm gains in cash cattle trade Tuesday is setting the bar higher for the rest of the cattle market as the week continues. Live cattle traded in the South at $97 to $97.5 per cwt, $1 to $2 per cwt higher than last week. Similar gains through the rest of the week would likely spark renewed support moving into the month of August.
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Growing coronavirus cases is adding to additional market concerns as there is uncertainty about how school re-openings will be affected in the coming weeks. This will continue to impact overall demand in the food service industry, making short- and long-term planning and buying very difficult for many institutions.
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Strong gains in nearby live cattle and feeder cattle futures Tuesday offset bearish indications which developed Monday. The potential to drive additional buyer interest into the complex midweek is likely to test nearby resistance levels in live cattle futures.
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Even though it is possible that boxed beef values have hit or are near seasonal lows, the lack of market support in the last week could create stagnant beef values over the near future. The inability to push wholesale prices higher could quickly derail recent futures gains.
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Expanding prices spreads in 2021 contracts is rebuilding long-term support to the lean hog complex, which has been mired by uncertainty and production challenges through the year. This could move the discussion away from abundant current supplies and to potential market growth opportunities in the coming months.
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Volatile moves in pork cutout values is causing moderate concerns in the complex. This may add even more uncertainty, limiting the ability for nearby contracts to hold recent gains.
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Active cash market gains over the last week has sparked underlying fundamental support across the complex. This is helping to drive renewed interest through the entire complex as traders look for further fundamental gains moving into the month of August.
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Labor issues at packing plants continue to be a daily struggle in order to meet expected slaughter projections. The focus on the ability to keep and maintain full production crews will likely be a major challenge for the entire meat industry through the end of the year.
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