General Comments:
Firm gains last week is creating the potential for additional underlying cash price gains as packers and feeders slowly return for another round of cash market activity Monday morning. Limited cash trade is expected over the next couple of days, with showlist distribution and inventory-taking the main order of business Monday and traders likely to remain moderately cautious ahead of the Cattle on Feed report, which will be released Friday. The Cattle on Feed report will continue to loom over the market through most of the week with traders expecting larger placement levels once again and likely increase the overall number of cattle on feed in the monthly report. The ability to bring additional price support to cash markets during the last full week of September will go a long way in helping to set seasonal lows, with the focus quickly moving to further fall and winter support through the end of the year. Overall supplies of cattle are expected to tighten from current levels, although this tightness will not likely be most evident until mid-October. Futures trade is expected to remain mixed early Monday with the focus on firm gains developing during the month of September, likely setting a low in all contracts before the Labor Day holiday this year. The ability to hold onto recent gains could help to stimulate much needed price stability through the end of the month and help spark open interest growth as noncommercial traders slowly but steadily move back into the complex after quickly exiting the complex last spring.
Lean hog futures continue to look for additional direction following price levels stabilizing at the higher price points last week. With October futures hovering near $66 per cwt over the last few trading sessions, it appears that the bulk of bullish market activity has already been seen surrounding the German African swine fever issues, with traders still uncertain of just how much additional short- or long-term export support the U.S. will be able to secure. Europe continues to be the desired export partner for most of the countries that banned German pork. This is creating the expectation that needed exports will be diverted out of the remaining pork export countries in the EU, and German pork will fill domestic pork needs in these other countries. Some increased pork exports are likely in the U.S. through this process, but it is not expected to be the windfall of buyer support first hoped for once the news broke of ASF in Germany. This is likely to create light-to-moderate price adjustments over the near future as prices are still expected to remain in the current trading range, which developed over the last two weeks. Cash hog prices are expected $1 lower to $2 higher with most bids expected steady to $1 higher. Slaughter Monday is expected at 484,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Firm late-week gains in live cattle and feeder cattle is creating underlying market stability as traders look for tighter cattle supplies over the next several weeks. This is helping to boost further price support in December contracts with the most aggressive support still seen in early 2021. | 1) | Feeder cattle placements are expected to be increased in the upcoming Cattle on Feed report Friday afternoon. This could limit the recent market support in futures prices, which has developed over the last few weeks. |
| 2) | Cash market gains last week is helping to create further expectations that seasonal cash market lows may have already been hit. This is likely to keep feeders aggressively pricing cattle as they focus on tighter market ready cattle supplies over the next couple of months. | 2) | Despite the bounce higher in beef values Friday, the trend still remains lower during September. Typically, prices do not stabilize until early October, leaving additional beef market pressure likely over the next couple of weeks. |
| 3) | Firm gains continue to develop in pork cutout values with increased underlying support flowing out of the aggressive export sales report last week. The ability to increase pork movements in domestic and export markets continues to create expectations of further demand support during the fourth quarter of the year. | 3) | Cash hog values tumbled lower last Friday. This is creating some concerns that the aggressive moves higher may not only be done but have been overly aggressive in the last couple of weeks. |
| 4) | Tight hog supplies are still expected to be seen during 2021, which is expected to continue to keep long-term contract trading at a significant premium to current levels. The ability to focus on long-term market gains is likely to limit the focus on currently poor margins and low price levels. | 4) | Strong hog production growth through the end of the year is expected to create the need for continued aggressive packer schedules through October and November. If significant export gains are not seen in the next several weeks, the ability to quickly clear this added production may put pressure on hog values during the entire fourth quarter of the year. |
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