General Comments:
Light cash cattle trade developed in Texas and Iowa Monday afternoon at $109 per cwt live basis. It is likely that much of this trade is carryover from last week's activity, but it could easily set the tone for the upcoming week despite the bearish shift lower in live cattle futures. Showlists remain mixed for the week, but generally smaller in the South and larger in the North, prompting the expectation that packers will continue to be more aggressive over the weeks to come to sustain current procurement levels, especially in Kansas and Texas. With last week's average moving $1.14 per cwt higher than the prior week, cash cattle prices are at a 4-month high. The ability to continue to add light to moderate support over the coming weeks could hinge on the ability of feeders to secure steady to higher cash values at the end of the week despite the early pullback in futures. Futures trade remained extremely bearish Monday, but the fact that Monday was a federal holiday with generally limited trade volume in the market was not totally shocking as these light volume days typically seem to create more uncertainty through the entire market. Traders who did enter the market focused on covering positions and, in doing so, pushed spot December contracts below initial support levels of $111.10 per cwt set in early October. The ability to defend current price levels during the early minutes of trade Tuesday will tell more about the direction of the market than Monday's losses, as Tuesday's moves could be just as volatile and uncertain as trade volume returns back to normal levels following the Columbus Day holiday.
Despite moderate weakness seen in most nearby lean hog futures trade Monday, the lack of price pressure at the end of the session is helping create some much needed stability through the hog complex. Prices remained mixed across the complex, which can be viewed as confirmation of the recent up-trend seen through the complex. Traders are expected to remain generally cautious during early trade Tuesday with the focus on outside market moves and potential moves in pork values, but the ability to move additional pork in domestic and export markets over the next couple of weeks will likely continue to spark underlying buyer support in nearby contract months. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to firm. Slaughter Tuesday is expected at 488,000 head. Saturday runs are expected near 236,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Boxed beef values continued to show limited but firming price support with $0.56 gains in Choice, while Select cuts increased $0.52 per cwt. The focus on continued but steady support ahead of holiday needs could sustain underlying buying interest through the entire complex. | 1) | Sharp, triple-digit losses in nearby live cattle futures Monday is expected to create additional widespread concerns of market liquidation during the rest of the week. The move below October lows in spot December contracts may trigger further technical pressure as markets open Tuesday morning. |
| 2) | Feeder cattle futures posted limited pressure Monday in nearby contracts despite the tumble lower in live cattle futures. This indicates the potential of building market stability in feeder cattle prices near $135 per cwt in November contracts. | 2) | Uncertainty concerning fourth quarter beef demand, especially in the food service industry, remains the major focus heading into the holiday season. The increased number of COVID-19 cases is likely to further inhibit consumers returning to dining out routines through the upcoming months. |
| 3) | The recent uptrend in lean hog futures market remains intact despite attempted pressure Monday. This could help to stimulate additional commercial interest through the month of October. | 3) | Light to moderate pressure in cash and pork cutout values Monday created questions of doubt in some traders' minds about the short-term support of the complex. This could quickly limit the bullish market moves seen during the last three weeks. |
| 4) | Expectations of continued market strength building through the summer of 2021 as hog supplies are scheduled to be reduced is still allowing deferred contracts to hold strong premiums. Summer 2021 contracts are trading at a $15 per cwt premium to spot December contracts, helping to stimulate long-term market interest. | 4) | Continued pork production expansion in China cannot be overlooked as all indications indicate China has been able to control ASF outbreaks and is set on returning to unprecedented production levels. This will limit long-term exports from the U.S to China as the production system continues to expand very rapidly. |
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