General Comments:
Another round of lower cash cattle trade last week was not a significant surprise, although the inability to maintain most of the recent cash market support over the past couple of months is creating additional disappointment and concern of further pressure in the cattle market during the rest of September. Cash interest is expected to remain sluggish early Monday morning with the priority being placed on showlist distribution and inventory taking. This may delay most activity until midweek, which could put more emphasis on the ability for cattle futures to take a more active role in the direction of trade over the next few days. Live cattle futures have posted firm gains over the last two trading sessions, moving above last week's lows, and creating the expectation that follow-through buyer support may continue to develop during early week trade. Even at the current price levels, there remains concern that significant upside market movement may be limited over the near future based on underlying fundamental concerns as cash and wholesale beef values still remain generally weak. Overall beef demand is expected to remain limited for another couple of weeks before seasonal fourth quarter buyer support starts to redevelop, leading into the holiday season. This could leave prices unsupported in both cash and futures trade during the rest of September, although downward pressure is expected to be light to moderate due to the already depressed market prices.
Lean hog futures are likely to see moderate market adjustments Monday morning as traders have had more time to focus on the potential short- and long-term implications of African swine fever in Germany on domestic hog markets. There is still so much that is unknown about how this will impact global pork availability and what focus other countries beyond South Korea will take. The hope and expectation last week is that the U.S. will instantly become the beneficiary of widespread additional export demand in many of these countries, especially in Asia. But at this point it is hard to determine just how this will shake out. Ultimately, it should open the door for expanded trade in many areas of the world, but it has yet to see if the short-term movement will be able to justify the $13 per cwt rally seen in nearby lean hog futures over the last two weeks. Underlying domestic support is also starting to develop in the hog complex with pork cutout values posting moderate gains over the last couple of weeks. The combined impact of domestic and export market support could quickly change the direction of the market over the near future, focusing on renewed noncommercial buyer support moving into the market in the next several weeks. Cash hog prices are expected $1 lower to $2 higher with most bids expected steady to $1 higher. Slaughter Monday is expected at 483,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Feeder cattle futures have posted firm gains over the last two weeks, moving to $140 per cwt in September futures and holding a $2.40 per cwt rally above September lows. This move higher is starting to indicate that seasonal lows may have been set during early September, sparking renewed buyer interest from commercial and noncommercial traders over the near future. | 1) | Further pressure is possible in cash cattle trade over the next couple of weeks with packers appearing to have access to ample cattle following strong buying interest over the last several weeks. Tighter supplies are expected in the next couple of months, but cash values may continue to slowly erode until that point. |
| 2) | Boxed beef values have started to stabilize over the last couple of days, indicating that renewed buyer support appears to be developing at the lower price levels. Wholesale buyers may be stepping into the market ahead of what could be a moderate to strong, end-of-the-year beef market rally on hopes and expectations that demand will continue to expand through the fourth quarter of 2020. | 2) | Growing uncertainty of beef demand growth during the fall months continues to be focused on the ability for consumers to return to more normal buying patterns. Return to increased restaurant dining will be a major mark in expanding food service demand. Recent growth in COVID cases will continue to limit this expanded market over the near future. |
| 3) | Expanded markets for pork are expected to continue to develop in the coming days and weeks as the industry grapples with the reality that Germany has to deal with ASF within its borders. This could continue to develop firm fundamental support even when the emotional market swings dissipate. | 3) | Lean hog futures have been fueled by emotional buyer support over the last couple of weeks. This is leaving the complex ripe for a market correction, even though underlying bullishness remains. Light-to-moderate position taking is likely over the next couple of days in nearby and deferred lean hog trade. |
| 4) | Strong triple-digit gains in cash hog values have developed over the last several days. This is helping to accelerate the market optimism as packers become even more aggressive in securing needed hogs for daily procurement. | 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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