General Comments:
Following speculation about whether packers would show up and offer higher prices during the last full week of September and ahead of the Cattle on Feed report, light-to-moderate cash business developed Thursday afternoon. Although additional trade is expected to develop before the week is over, cash cattle trade posted $2 per cwt gains from last week's levels in most areas. Trade developed at $105 per cwt live in both the North and South, while dressed trade in the North was near $165 per cwt. The boost in cash values not only followed underlying support redeveloping in futures and boxed beef values during the week, but it helped to create underlying widespread market support, which may spark further futures market buying before the end of the week. Traders are now quickly changing gears from the recent gains and cash market support, to the upcoming Cattle on Feed report. Analyst expectations are that on feed numbers will increase 3.5% over year-ago levels, while placements are likely to see a 6% bounce from 2019 numbers. Marketings during the month of August are also expected to be over 3% lower than year-ago levels. The uncertainty in the afternoon report is not focused on if placement and on feed numbers will increase, but if early projections are in the ballpark of inventory gains. This could not only create significant pre-report positioning through most of the day Friday, but a bearish report would likely have a significant impact on trade early next week. Futures trade is expected mixed Friday morning with technical support developing Thursday, sparking expected follow-through support.
Early trade in lean hog futures is expected to be a balance between bearish market news from Thursday's Hogs and Pigs report and firming cash and pork values. The underlying support in cash hog prices through late September has been impressive with light-to-moderate gains becoming even more consistent as packers continue to increase prices paid for market-ready hogs in order to keep plants full. The surge higher in pork cutout values is also impressive, with prices gaining $3.06 per cwt based on expected further pork movement in domestic and export markets through the fourth quarter. Larger-than-expected hog inventory levels as of Sept. 1 is likely to create market pressure through the market with traders focusing mostly on the growth of heavy-weight hogs from year-ago levels. Although breeding inventory declined from year-ago levels, the limited reduction in hogs kept for breeding and farrowing intentions is likely to carry a generally bearish market tone well into 2020. The biggest question yet to be answered Friday morning is "just how much of this bearishness was factored into the market during the week". This could keep prices volatile during the Friday session. 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 221,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Cash cattle gains Thursday helped solidify the underlying fundamental support that has been developing in the complex. Cash cattle prices posted $2 per cwt gains from last week's levels as packers focus on expected tighter supplies over the coming weeks, combined with beef value stability. | 1) | Traders' attention will quickly move to the afternoon release of the Cattle on Feed report. Expectations of increased placements and higher cattle-on-feed numbers may curb any recent market optimism in futures trade.
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| 2) | Firm gains in nearby live cattle futures has broken through short-term resistance levels of $112 per cwt in December contracts. December futures are trading at one-month highs, setting the next market target at $114 per cwt during the month of August. Narrowing this price gap during Friday's trade would help spark further technical support through the complex. | 2) | Despite the firm gains in cash and futures trade at the end of the week, narrow gains in beef cutouts has not kept up with the rest of the market. This could limit further widespread market support if beef values do not significantly move higher in the near future. |
| 3) | Strong gains in pork cutout values Thursday focused on the continued ability to actively move pork in all markets. This may overshadow report pressure seen at the end of the week based on expectations of further active pork movement well into October. | 3) | Growth of hog numbers in the 180 lb. and higher category signals continued bearish market news in the short term. This will put further pressure on the already-expected large supply of hogs ready for the market in the next month. |
| 4) | Farrowing intentions in Thursday's Hogs and Pigs report were most impacted in the September through November projection. This pullback of 5% from year-ago levels will further impact the availability of hogs during the middle of 2021. Putting increased price support to April through August lean hog futures. | 4) | Despite hogs kept for breeding fell from year-ago levels, the reduction is not as great as most expected, or many feel will be necessary to keep lean hog futures trading in the current price range. This could have a bearish impact on 2021 price levels over the upcoming days and weeks. |
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