General Comments:
Following
moderate trade in all areas on Tuesday and Wednesday at lower money,
both sides appear willing to wait until sometime Friday before trading
additional cattle. Given the active cattle sales over the last several
weeks, it is expected that at least some additional movement will be
seen before the end of the day. Although feeders are looking for higher
prices based on the underlying support moving into the futures trade.
Trade at $101 per cwt live in the South and $160 dressed in the North
seems to be the base price levels seen earlier in the week, which at the
end of the day, may gain additional trade if feeders are not able to
push prices higher before that point. Given the number of cattle already
sold for the week, it is uncertain how trade Friday will shift the
overall weekly average prices, which are expected to be $2 to $3 per cwt
lower than last week. Expected strong follow-through support in lean
hog futures is likely to add additional spillover support to live cattle
and feeder cattle trade early Friday. Seasonal pressure in boxed beef
values is still developing following Labor Day, but the focus on a
dynamic shift in world supplies of pork will not only impact domestic
and export pork values, but will quickly spill over to the beef complex
and overall demand for beef. Feeder cattle futures have and are likely
to continue to show significant market support despite the recent gains
in corn prices. Higher corn prices add to production costs and typically
pressure feeder cattle prices. But at this point, feed and production
costs are being overlooked as traders focus on potential long-term beef
market gains following additional market availability worldwide.
Limit
gains in lean hog futures Thursday is expected to spark additional
widespread support at the end of the week. The announcement Thursday
that Germany confirmed the first case of African swine fever in a wild
boar, and South Korea was the first country to ban pork imports from
Germany is likely to spark additional reactions around the world. This
is significant because Germany is the largest pork producer in Europe,
and this move quickly puts U.S pork supplies in a spot to quickly expand
export markets around the world. The short- and long-term implications
of this change in the industry will be significant and is likely to add
even more support to hog futures at the end of the week. Expanded
trading limits of $4.50 per cwt are available in all hog contracts, with
the potential that strong end-of-the-week gains will flood into the
complex at opening bell. Cash hog prices are expected $1 lower to $2
higher with most bids expected steady to $1 higher. Slaughter Friday is
expected at 481,000 head. Saturday runs are expected at 410,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Renewed
buyer support in live cattle and feeder cattle trade following the
upward surge in prices in lean hog futures is expected to focus on
regaining fundamental buyer support, which could spark renewed long-term
interest in all cattle futures.
| 1) |
Cash
cattle prices continue to gain limited support despite support from
futures markets and optimism that the gains in hog prices will add to
short- and long-term demand growth for beef. Packers continue to gain
access to market-ready cattle at lower prices, unwilling to push prices
higher at the end of the week.
|
| 2) |
Feeder
cattle futures have posted a strong "double bottom" at $138.25 per cwt
in October futures, which has the potential to rekindle additional
technical buyer support in the feeder cattle complex. This may very well
signal the seasonal low in the complex as traders look for additional
support in the fourth quarter of 2020.
| 2) |
Seasonal
beef demand pressure is still the driving force through the live cattle
complex during the first two weeks of September. With the majority of
beef demand utilized domestically, significantly less impact to beef
values will be seen from expanded pork exports.
|
| 3) |
African
swine fever found in Germany's boarders has quickly changed the scope
of world pork demand, as South Korea was the first country to ban German
production. This opens the door for expanded U.S. pork exports over the
near future and is likely to change the course of the lean hog market
significantly.
| 3) |
Traders
are focusing on the holiday-delayed release of weekly Export Sales
reports and monthly WASDE numbers, both released Friday morning. This
could quickly curb recent market optimism through nearby lean hog
futures if active export numbers are not seen.
|
| 4) |
Expanded
trading limits in lean hog futures will be available and are likely to
see widespread gains as traders try to account for how worldwide pork
markets will change following Thursday's ASF discovery. This is expected
to further widen the skyrocketing lean hog futures price seen over the
last two weeks.
| 4) |
The
announcement of African swine fever in Germany brings a sobering
reality that the U.S. industry is just "one potential case away" from a
devastating blow to the domestic pork industry. This development in
Europe makes it clear that AFS is not as much about the impact on
production, but the availability to global markets.
|
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| #completeherdhealth |
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