General Comments:
Cash cattle trade is becoming established with moderate gains from last week, following the inability to move prices higher from levels seen early in the week. Light-to-moderate trade has been seen in most areas with live trade at $103 in the South and $103.50 in the North. Dressed trade in the North developed Thursday at $162 per cwt. Prices are generally $2 to $2.50 per cwt higher than last week's average, with enough trade to likely set the tone of the market and overall market range for the week. Overall trade reported so far this week is generally light, which would suggest that at least some clean-up activity will continue to develop through the day Friday. But barring any major upset in futures prices, any additional cash cattle trade will likely remain in the current price range. As packers continue to focus on the ability to hold processing levels stable around the 118,000 to 120,000 head per day level through the week, weekend procurement will be even more important to watch as this will be where packers can manage overall desired plant through-put without major disruptions. The concern is that with falling beef values and thinning margins, that packers will start backing away from Saturday kill schedules over the next couple of months. Futures trade is expected mixed in light early trade Friday morning. Although live cattle and feeder cattle futures have recovered significantly during early September, the concern that softness in beef demand through the upcoming weeks will limit further buyer support and confine nearby contracts within a moderate sideways trading range in the near future. This could also impact the ability to spark additional open interest gains, as commercial and noncommercial traders search for other more appealing commodity markets for short-term gains.
Aggressive pork purchases from China last week as reported in Thursday's weekly Export Sales report sparked renewed buyer support to the lean hog complex. Nearby contracts are more heavily impacted by the active movement of pork to China, but the underlying focus on potential gains from world demand brought about by African swine fever in Germany could add even more end-of-the-week buyer support. Lean hog futures continue to focus on establishing a trading range given the developments in the global markets over the last week. This appears that nearby lean hog futures may hinge on the $65 per cwt price range, which is a $10 to $13 per cwt rally over levels in late August. Continued strong support in cash hog values and pork cutout values is helping to spark additional underlying support through the complex, although limited volume Friday could leave market moves choppy at best. Cash hog prices are expected $1 lower to $2 higher with most bids expected steady to $1 higher. Slaughter Friday is expected at 482,000 head. Saturday runs are expected at 188,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Continued support in cash cattle trade during the week is helping to solidify early week market support. This has helped to put the focus on increased packer spending, creating hope that further gains will develop through the rest of September. | 1) | Feeder cattle futures have taken the brunt of the latest price pullback in cattle trade with nearby futures falling $2 per cwt in the last two to three trading sessions. The concern that further pressure may develop in cash and futures prices, is adding even more potential weakness to late-week trade. |
| 2) | Long-term beef market support continues to loom on the horizon with tighter supplies of market-ready cattle next spring and expectations that beef demand will continue to improve over the coming months. This has April live cattle futures trading at a $11 per cwt premium to spot prices, giving hope that better prices will develop next year. | 2) | Softness in boxed beef prices has become even more consistent over the last week. This is limiting buyer support and offsetting optimism from higher cash cattle prices. |
| 3) | Pork cutout values continue to surge higher, posting aggressive triple-digit gains Thursday. The fundamental support in wholesale pork prices is offsetting concerns of eroding fall domestic demand. | 3) | Limited buyer support in deferred lean hog futures trade continues to focus on uncertainty of how global pork buying changes will impact U.S. demand during 2021. Most of the emphasis is on immediate supplies, which creates concerns about developing long-term trading relationships. |
| 4) | Expectations of moderate-to-strong export demand developing not only in China but many Asian countries over the coming weeks is expected to spark additional price support in nearby lean hog futures. | 4) | Packers continue to keep aggressive procurement schedules with 485,000 head moving through plants every day with Saturday runs expected near 200,000. The amount of hogs and pork moving through the system continues to put pressure on the ability to consistently and aggressively increase pork demand in order to keep supplies from backing up in coolers and freezers. This may become a more prominent issue if export sales do not actively expand as some expect. |
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