General Comments:
Cash cattle markets may have finally turned the corner over the last couple of weeks with packers focusing on tighter upcoming cattle supplies available to the market. This is allowing bids to firm and feeders are taking advantage of the upward market swing while they have the opportunity. Although the majority of cash business is expected to have wrapped up over the last two days, some additional clean-up trade is likely Friday, with prices steady to firm with previous levels. Cash trade is generally $2 to $3 per cwt higher than previous week levels with live deals reported at $107 per cwt while dressed trade is mostly at $167 to $168 per cwt. The ability to sustain cash market firmness through the early part of October will likely go a long way in helping to spark renewed underlying support back into the entire cattle trade. Mixed futures trade is expected as the underlying fundamental firmness is drawing additional buyer interest back into the market, but there remains concern that boxed beef values may have a hard time showing significant market support over the near future, and technical support is still limited, leaving live cattle and feeder cattle futures within a sideways market trend over the near future.
Limited trade is expected early Friday morning in lean hog futures. Although sharp gains in pork cutout values are expected to solidify through the end of the week, the concern that this may still limit the overall increased movement of pork over the near future could leave nearby futures contracts unimpressed. October futures remain the front-month contract, but with quickly dwindling open interest and lack of activity, the focus remains on December futures, which are trading at a significant discount to October, but viewed as the more accurately priced market contract. This will continue to focus on the direction of cash and pork values through the end of the week with many futures traders cautious to aggressively step back into the market at this point. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady. Slaughter Friday is expected at 478,000 head. Saturday runs are expected at 209,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Continued support in cash cattle trade is sparking renewed interest from a fundamental and technical perspective. This is likely to add increased end of the week support to the live cattle market. | 1) | Moderate futures pressure in live cattle and feeder cattle trade is offsetting the firm cash market gains in each of these markets. The concern that support through the end of the quarter may not hold is limiting market optimism. |
| 2) | Open interest continues to steadily and slowly increase in live cattle futures. This is drawing additional traders back into the market who have been absent for the last several months. | 2) | Short- and long-term beef demand growth continues to be a major concern to live cattle traders. Although retail beef movement remains strong, the concern about the health and regrowth of food service demand, including sit-down restaurant business will be a significant factor in moving additional high value beef cuts. |
| 3) | Sharp gains in pork cutout values have flooded the market with cutout prices surging more than $4 per cwt Thursday, pointing to further gains ahead. | 3) | Major price discounts continue between October and December contracts. This could continue to cause market shifts and add volatility to nearby futures trade. |
| 4) | Cash hog values are still posting moderate-to-firm gains as packers continue to actively bid to keep plants full during October. This is likely to spark additional underlying support in the entire market. | 4) | Concerns of long-term export pork growth continue to limit aggressive buyer support despite positive news that U.S. pork is being able to move into several Asian countries more actively than previously seen. The inability to continue to develop trade relations with normal trade partners may limit further pork export business. |
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