Tuesday, July 9, 2019

Tuesday Morning Livestock Market Summary - Hog Market Pressure Adds Long-Term Concerns

GENERAL COMMENTS: 
Limited activity is expected in the cash cattle markets Tuesday with bids and asking prices still undefined and are likely to remain that way at least until later in the day and potentially midweek. Given the steady-to-firm moves in cash trade last week, feedlot managers are expected to become even more aggressive despite continued pressure in futures trade and beef values early in the week. Packers are likely to float initial token bids over the next couple of days, which without a major breakdown in futures trade will not gain much attention at this point in the week. There is some expectation that at least light trade may develop in the South by Wednesday following the trend for cash business earlier in the week and over the last couple of months, but at this point, feeders are unlikely to back away from early-week expectations. Futures trade is expected to open steady-to-moderately higher Tuesday morning as short-covering moves through nearby live cattle trade following the adjustments late Monday. The underlying tone of the market remains firm, which has tested short-term resistance levels over the last week. Commercial support coming back in the complex in the next week is likely to bring additional underlying support, trade volume and price moves in all live cattle trade. Feeder cattle futures continue to be closely tied to moves in the grain market, but the focus on firming live cattle futures is sparking renewed market support as traders build on holiday market gains late last week.
Underlying market pressure remains well rooted in lean hog futures with traders focusing on recent market liquidation over the last several trading sessions. With fourth quarter lean hog futures now trading below $70 per cwt, the focus on additional liquidation continues to develop as traders remain concerned about short- and long-term production levels and the inability to spark renewed pork demand through the summer months. Pork values continue to erode during early July, leaving traders still hoping for any help and development from export markets, which may not quickly develop given the current trade issues. The market remains volatile with only a bullish news headline needed in order to spark renewed interest across the complex. But the inability to actively move pork into the Chinese market continues to be the biggest hurdle across the entire complex. Cash trade is called steady to $2 lower Tuesday morning with most bids steady to $1 lower. Expected slaughter Tuesday is at 477,000 head.
BULL SIDEBEAR SIDE
1)
Live cattle futures remain at or near short-term resistance levels following active buyer support over the last week. A move above $108 per cwt in October live cattle futures, is expected to spark renewed buyer interest through the complex, opening the door for additional long-term support.
1)
Early-week pressure in nearby live cattle trade has caused limited concerns that trader interest may be slowing during early July. This could limit additional buyer support the next couple of days.
2)
August feeder cattle futures are testing June highs of $139.90 per cwt during early July. Continued buyer interest through the entire complex continues to focus on long-term support developing in the market and breaking away from contract lows set in late June.
2)
Boxed beef values have struggled to show firm market support over the last week, creating some concern that overall holiday beef demand remains disappointing, and could limit additional product movement through the rest of the summer.
3)
Lean hog futures remain oversold, with limited downside movement still expected to develop over the next couple of weeks. Overall demand expectations for pork are likely to remain firm, especially for domestic needs, which is likely to limit additional market pressure in the upcoming months.
3)
Strong pressure redeveloped in pork cutout values Monday, leaving the pork market vulnerable to additional underlying pressure through the upcoming days. The lack of support in traditional summer strongholds is causing some concern that overall pork demand is faltering at current price levels.
4)
Worldwide pork demand continues to increase as the challenges of production losses due to African swine fever are still causing significant concerns across Asia. This is expected to allow U.S. pork to fill a portion of this demand need, even though most of the sales may not move directly into China.
4)
Active futures market liquidation has quickly developed during early July, testing short-term lows. October lean hog contracts have moved to four-month lows early in the week with limited support expected to develop over the near future given the underlying bearish tone across the entire complex.


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