General Comments:
Cash cattle activity remains quiet going into Tuesday morning with bids and asking prices generally still unavailable. This delay in activity is not surprising at all with trade likely to be pushed to the end of the week, and potentially until late Friday after the release of the monthly Cattle on Feed Report. The firming support in boxed beef values over the last couple of days is helping to regain underlying support through the complex, although traders remain concerned about the recent pullback in futures trade. Traditionally, the Cold Storage report has been a minimal factor in price direction due to the overall stability in beef movement along seasonal patterns, but the demand challenges through this year and uncertainty in retail and food service demand over the upcoming months is adding more focus on beef clearance through the month of August. The anticipation of additional beef market draws could spark some pre-report activity Tuesday before the Cold Storage report is released, but most report watchers are still more interested in the direction of cattle inventory levels in Friday's Cattle on Feed report. Futures trade losses Monday in live cattle futures had more to do with outside market pressure than actual technical or fundamental changes in beef factors, but the concern that further losses will develop has traders generally cautious heading into opening bell Tuesday morning.
Hog traders expect the Cold Storage report will show the impact of recent increases of pork exports to China and the effect on overall pork supplies. With packer schedules stabilizing over the last several weeks, the amount of pork available to the market has been more consistent and easily calculated. But the challenging point is understanding just how active pork movement through the system has been. Domestic demand is thought to have lagged traditional levels given the still-depressed food service industry, but strong retail movement and active export trade is likely to point to additional pork movement, which will be closely watched in the afternoon Cold Storage report. Traders are also focusing on the upcoming Hogs and Pigs report, which will help to not only get a better handle on the backlog of hogs through the summer months, but a clearer image of producers' production intentions leading into the next year. But beyond the scope of longer-term direction in these upcoming reports, traders are more focused on potential export demand changes in the coming weeks and months. The uncertainty of how much pork export demand the U.S. will get due to German losses is causing market pressure. Pork exports are expected to increase, but likely not to the aggressive levels first thought or hoped for as the news of African swine fever in Germany broke. This could continue to erode previous support in nearby contracts. Cash hog prices are expected $1 lower to $2 higher with most bids expected steady to $1 higher. Slaughter Tuesday is expected at 483,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Firming boxed beef values have moved into the complex each of the last two days. This fundamental support is likely to create renewed longer-term buyer support in cash and futures trade, bringing active buyers back to the table. | 1) | Feeder cattle placements are expected to be increased in the upcoming Cattle on Feed report Friday afternoon. The focus on additional placements and larger overall cattle on feed numbers may put even more pressure on short- and long-term price levels. |
| 2) | Firmness in cash cattle trade over the last couple of weeks is helping to rekindle the idea that seasonal losses may have already been seen, allowing for further buyer support as packers focus on tighter cattle supplies within the next 30 to 60 days. | 2) | Sharp losses Monday in nearby live cattle futures was initially focused on outside market pressure. But the inability to rekindle support through the day diverted the focus from outside markets to the concern that increased beef inventories in freezers could spark additional losses during the week. |
| 3) | Strong gains in pork cutout values is helping to focus on expectations that strong product movement is seen in domestic and export trade. This is likely to help traders become more aggressive, especially in deferred contract months. | 3) | Lean hog futures continue to steadily back away from previous support, which was driven by export expectations and Germany's inability to export pork to its regular trading partners. The concern that less than expected overall export business may be available for the U.S. to attain is causing prices to ratchet lower. |
| 4) | Traders are expecting long-term reductions in hog production in the upcoming Hogs and Pigs report. This is likely to do little to short-term price moves, but likely to further expand the premium in 2021 contracts. | 4) | The upcoming Hogs and Pigs report released later in the week is expected to focus on the large year-over-year growth in hog production seen during 2020. Although lower long-term production is expected, the focus on large fourth quarter pork supplies will likely keep prices under pressure over the near future. |
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