Friday, November 29, 2019

Friday Morning Livestock Market Summary - Additional Price Swings May Follow Limited Volume

GENERAL COMMENTS:

Even though overall market activity is expected to remain limited Friday following the Thanksgiving holiday break, there are a lot of pieces still out of place that will need to be sorted out in a short time Friday. Cash cattle trade started to develop Wednesday with both sides hoping to get things squared away before leaving for Thanksgiving activities, but the winter storm through much of the Midwest and aggressive follow through support in futures trade limited the ability for cash market resolution in some areas. Although some spotted trade developed at $118 per cwt live basis and $187 per cwt live, as much as $3 to $4 per cwt higher, additional trade is expected to still develop. The main question through the morning is if packers will be willing to step back into the market, extending these offers, or at this point wait until next week to secure additional cattle needs. The aggressive triple-digit rally in futures trade also leaves some questions as to how much follow-through support will develop at the end of the month. With February contracts setting new contract highs Wednesday, the expectation that additional underlying support is developing through the complex. But given the holiday-shortened trading schedule Friday and expected trader participation to be sparse, prices could struggle to find additional support. Friday slaughter runs are expected at 116,000 head.

Early morning moves in lean hog futures is likely to remain as strategic as a coin flip Friday morning. Although proponents of both bullish and bearish market camps have plenty of ammunition to argue their reasoning, the fact that holiday trade and limited interest does not usually follow logical and fundamental market direction leaves late-week market moves generally unclear. Market participation is expected to remain extremely limited with many traders already checking out following the Wednesday session as Friday's market trade will be abbreviated, and some institution traders have Friday as a holiday. Given that market direction shifted lower ahead of the holiday and was unable to gain any momentum from the bullish shift in cattle trade can point to additional pressure developing through the end of November. But given the strong market pressure over the last three weeks in nearby contracts, it would take only a spark to rekindle buyer support which has limited downward market expectations. It is likely that trade will wander within a narrow to moderately mixed trading range through Friday morning, waiting for additional direction next week as traders turn the calendar to December. But at this point any market moves, narrow or wide, should not be unexpected. Cash hog bids are expected to $1 lower to $1 higher per cwt lower with most bids steady. Slaughter Friday is expected at 454,000 head. Saturday runs are expected at 384,000 head.


BULL SIDE BEAR SIDE
1) Sharp underlying support midweek in live cattle and feeder cattle trade continues to move the focus on expanding market support through late November. With February contracts setting new contract highs, the focus on potential follow-through gains develops. 1) Limited volume Friday is likely to create uneven and volatile market movements through all cattle futures.
2) Despite cash cattle trade remaining limited Wednesday, the firm price support seen in areas where trade did develop points to additional cash market momentum building through the end of the week. 2) With Thanksgiving holiday demand in the rear view mirror, there will be limited short-term focus on beef demand moves. This could limit the underlying support in beef values over the upcoming weeks, starting to erode current packer margins and overall retail beef movements.
3) Cash hog values have started to firm through the last couple of days as packers are finding it hard to maintain desired plant capacity without pushing cash hog prices higher. In order to take advantage of still strong packer margins, packers are likely to continue to slowly increase cash values in order to draw more hogs to market. 3)
Lean hog futures continue to remain near long-term support levels with very limited bullish market indicators expected over the near future. A move below $66.77 per cwt in February futures may spark additional widespread pressure during early December.
4) Continued hope surrounding establishing a partial trade deal with China in the upcoming weeks remains in the back of many traders minds. This should help to support underlying pork demand to China as African swine fever has continued to disrupt domestic production through the country. 4) Firm pressure in wholesale pork values through the week has added additional bearish concerns to the entire complex. Although a lull is expected following Thanksgiving holiday buying, the concern that pork cutout values will not be able to sustain current levels during early December is likely to lead to additional widespread market softness.



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