General Comments:
Light-to-moderate cash cattle trade developed Wednesday with additional trade in the South at $103 to $105 per cwt live basis. Most trade was seen at $105 per cwt, which is still generally $1 per cwt lower than last week's average. Northern trade, which was generally quiet up until midday Wednesday, started to develop at $166 to $167 per cwt dressed basis. Most trade developed near $167 per cwt, but still $2 per cwt below last week's levels. The underlying pressure in cash cattle trade combined with active triple-digit losses in futures Wednesday is likely to limit additional packer interest at these prices with lower bids expected Thursday morning unless there is a major shift in direction of the futures market. Early August lows of $106.97 per cwt in October contracts held late Wednesday, limiting markets from moving below initial support levels, but the combination of weaker cash cattle trade and concerns that beef values may quickly turn lower over the near future is creating an open door for the sellers to step into the market as market bears continue to look for further liquidation over the next couple of weeks. Feeder cattle futures continue to shift, posting additional triple-digit losses in all nearby contracts expect the soon-to-expire August futures. September feeder cattle contracts settled at $141.77 per cwt, representing a $6 per cwt price tumble over the last two weeks. This swift market move is likely to represent the move away from market highs, as traders look for near-term support going into the fall months. Initial support levels in September contracts still remain at $139.62 per cwt, over $2 per cwt below current price levels. The potential to move further below these levels is likely in the upcoming weeks and months as seasonal pressure is likely to further develop across the feeder cattle complex.
Despite the ability to sustain additional cash market support midweek and break away from the bearish trend in cattle futures, lean hog futures are expected to see additional market pressure Thursday morning, especially in nearby contracts. Sharp triple-digit losses in pork cutout values is likely to be the spark that will lead to additional selling in nearby contracts. It is uncertain just how much short-term impact this will have on 2021 contracts, but the main focus of the market will be on seasonal pressure as demand is expected to slow significantly leading into and following the Labor Day weekend. This could bring further pressure to lean hog futures trade in late August as traders prepare for the inability to move pork supplies at current levels. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Thursday is expected at 485,000 head. Saturday runs are expected at 277,000.
| BULL SIDE | BEAR SIDE | ||
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Continued price support in boxed beef values have been able to defy a late August price tumble so far. The focus on continued buying in front of the Labor Day weekend has helped to spark additional gains.
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Cash cattle trade has started to shift lower, although at this point losses have been limited to $1 to $2 per cwt. This move lower could indicate that a seasonal high has been hit last week, as prices traditionally soften through the month of September and early October before regaining market momentum at the end of the year.
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| 2) |
Spring 2021 live cattle contracts continue to hold a strong premium to nearby contracts. The focus on firming price levels during the first quarter of 2021 despite increased cattle placements points to expectations of beef demand recovery in the coming months.
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Sharp losses in live cattle and feeder cattle futures could indicate further price pressure may develop as traders expect beef values to pull back from the strong rally higher as Labor Day buying wraps up.
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Cash hog values continue to hold moderate-to-strong gains as packers continue to actively move into the market in order to keep plants full. This helps them take advantage of strong packer margins given the recent support in pork values.
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Sharp losses in pork cutout values Wednesday may be the signal that traders have been looking for to indicate a significant change in market direction. The lack of support in pork prices could spark widespread concerns of price sustainability in nearby contracts.
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Deferred lean hog futures continue to hold well despite the pressure in nearby contracts. June futures are holding a $21 per cwt premium over spot month futures, indicating further market strength ahead.
| 4) |
Hog supplies continue to remain strong, even with active slaughter levels of 485,000 on a daily basis, the potential to quickly reduce the amount of market-ready hogs seems limited and could continue to limit price gains over the next few months.
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| #completeherdhealth |
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