General Comments:
Cash cattle markets remain quiet Wednesday morning with not enough business on Tuesday to establish a good market test despite the development of limited cattle selling on a dressed basis in Nebraska and Iowa at $164. The lack of underlying support in boxed beef values and Tuesday's futures market pullback will make it even more challenging for feeders to stick with higher asking prices through the rest of the week. But steady-to-higher cash values at the end of the week remain the goal, with the focus on lighter offerings during October and November creating the potential for further cash market gains. Futures trade weakened significantly Tuesday with the main focus on early 2021 live cattle contracts posting triple-digit losses. Although to be fair, overall market activity remained limited, the inability to maintain previous technical support and give up recent market highs so quickly is creating concerns through the complex. Traders are waiting for the upcoming Cattle on Feed report Friday. With early analyst projections pointing to an estimated 3% increase in overall cattle on feed numbers and 6% gain in cattle placements during the month of August, the focus on fall market supply growth heading into the fall months could limit further short-term support. It is helpful to keep in mind that the Cattle on Feed report traditionally has a relatively short-lived impact on cattle market prices, with most of the trade seen in the two to three trading sessions surrounding the report. But given the lack of support during the week, it is possible that generally weak market support could hold leading up to the Friday report.
The lean hog futures market continues to be the bright spot of the livestock market through the month of September following strong triple-digit gains in all nearby contracts quickly pushing the attention on potential long-term buying changes in the pork market. October futures broke through resistance levels, setting six-month highs following spot contracts closing $2.72 per cwt higher. Underlying buyer support could continue if there are increased export sales on Thursday's export sales report. Traders are also looking for increased long-term market direction in the quarterly Hogs and Pigs report, also out Thursday. This will help to create a better picture of short-term supply levels and how effectively the industry has been at working through the backlog of hogs seen during the spring months. But the bigger long-term impact of the upcoming Hogs and Pigs report will likely be focused on farrowing intentions during 2021, and how the recent year will impact long-term pork production. This could continue to have a far-reaching impact on price levels in nearby and deferred contracts. Cash hog prices are expected $1 lower to $2 higher with most bids expected steady to $1 higher. Slaughter Wednesday is expected at 486,000 head. Saturday runs are expected at 220,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Despite the pressure in futures trade, cattle feeders continue to hold to higher asking prices and looking for higher cash cattle trade by the end of the week. The focus on supplies of market-ready cattle tightening over the next two months is likely to continue to spark active packer interest. | 1) | Feeder cattle futures have tumbled $3 per cwt lower over the last week. This continues to add concern that increased pressure will develop ahead of Friday's Cattle on Feed report. |
| 2) | Even with recent price pressure in feeder cattle futures, it still appears that seasonal lows have already been set. Seasonal lows typically do not develop until early to mid-October, which is creating hope and expectation for increased price support, which will overshadow the recent pullback in price levels. | 2) | Limited support in boxed beef values during the month of September is creating uncertainty about the ability to sustain current short-term beef demand. With overall movement in retail and food service industries still well below traditional levels, the concern of clearing beef supplies on a steady basis is weighting on the market. |
| 3) | Aggressive gains continue to develop in cash hog trade. The national average hog price has moved to $63.26 per cwt, quickly narrowing the discount between futures and cash prices for the last several months. | 3) | Pork cutout values have eroded as the week continues, creating additional uncertainty about sustaining strong cash and futures gains. |
| 4) | Renewed buyer support in nearby lean hog futures Tuesday sparked underlying technical support as October contracts moved to new six-month highs. This is helping to bring additional commercial and investment trade back to the lean hog complex as traders focus on bullish export expectations. | 4) | Pork supplies in cold storage at the end of August increased 2% from month-ago levels. The increased production levels and active plant schedules have overshadowed strong domestic and export pork movement, creating concerns that supplies may continue to grow through the end of the year. |
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