General Comments:
Cash cattle trade is expected to remain quiet most of Monday with showlist distribution and inventory taking likely to be the main order of business as both sides return from the weekend break. Lower cash cattle prices last week continue to add growing concern that further pressure may be seen over the next few weeks, although the focus on tighter fed cattle supplies over the next several weeks should keep packers more active. With increasing numbers of COVID-19 cases in many areas, the concern of further restrictions and potential fear of further demand erosion is starting to affect cash and futures trade. Bids and asking prices are not likely to develop until midweek or later; the tone of futures trade and direction of boxed beef prices early in the week will have a significant role in the underlying direction of futures trade through the end of the month. Limited early volume is expected in live and feeder cattle futures, although the loss of nearly $4 per cwt in December live cattle trade last week was a punch to the gut that will likely affect the short-term movement in cattle trade early in the week. A combination of short-covering and follow-through selling pressure is likely to slowly develop across the complex during early week trade. Traders are looking for any sign of longer-term support before actively stepping back into the complex. Late-week pressure in feeder cattle trade has continued to add uncertainty to the complex with the November contract unable to hold support seen during early October, which points to additional building market pressure.
Lean hog futures closed lower Friday due in part to aggressive continued pressure from cattle contracts. But the tone of the hog market continues to remain bullish following surging price levels over the last two weeks. December lean hog futures continue to flirt with $70 per cwt price levels, a level not seen in the December contract since late 2019. A sustained move above that level would likely spark renewed buyer support through the entire lean hog complex despite large supplies of market-ready hogs. The expectation of tighter supplies through the first half of 2021 continues to focus price premiums in the coming months. Although the threat of additional restrictions from increased COVID-19 cases continues, the impact on overall pork demand is expected to remain more limited than beef demand based on increased export trade in pork. But this is also likely to limit further gains as pork can easily be priced out of a very competitive global market. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to firm. Slaughter Monday is expected at 487,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Tighter supplies of market-ready cattle are expected to slowly trickle in over the next several weeks. The middle of October through most of November is when the lighter spring placements should be ready for market, potentially causing increased packer support over the next few weeks. | 1) | Sharp losses last week in live cattle futures quickly set the tone for market weakness during the third quarter of 2020. There is a lot of trade before the end of the year, but October is starting off extremely bearish, creating uncertainty of a late-year market rally. |
| 2) | As nearby live cattle futures near short-term support levels, the potential for increased buying in an oversold market could spark active price swings, regaining recent losses. | 2) | Lower cash cattle prices at the end of the year sparked renewed concerns of further fundamental pressure developing in the next couple of weeks. |
| 3) | Lean hog futures are testing long-term support levels with prices at 10-month highs. The focus on strong upcoming holiday demand and active export pork movement is drawing additional buyer interest. | 3) | Pork prices quickly eroded Friday. Although the tone of the market remains higher, the pullback in prices at the end of the week could be seen as a warning of further pressure to come. |
| 4) | The inability of Germany to export pork to most countries outside the European Union due to ASF cases in wild boars opens the door for U.S. pork exports and also allows the chance to build strong, and hopefully lasting, trade relationships with new trading partners. | 4) | Packers continue to run at capacity speeds, leaving very little room for error or mechanical breakdowns without causing significant shifts in the entire system. This is likely to become even more of an issue through the fall and winter months when very active weekend slaughters are needed to clear committed hogs. |
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