Light to moderate trade that developed Thursday
afternoon in the North is expected to have set the firmer market tone
for the week. The full range of cattle sold Thursday is $177 to $182 per
cwt dressed basis, but most cattle sold at $181 to $182 per cwt. This
is $1 to $2 per cwt higher than last week's average, allowing for
positive market expectations to develop in all other areas. The
combination of underlying support in wholesale beef values, futures
trade and extremely large packer margins is helping to stimulate a
healthy appetite to keep plants at capacity through the near future.
Futures trade is expected mixed in sluggish early trade as traders
continue to struggle to break away from the light to moderate range that
has been established over the last couple of weeks. Even though there
remains firm underlying support, the ability to break through short-term
resistance levels in live cattle or feeder cattle trade remains
uncertain. Given still strong cattle supplies and traditional seasonal
pressure through the holidays, it may be difficult to spark aggressive
follow-through buying in order to continue to aggressively move prices
higher. Friday slaughter runs are expected at 116,000 head.
The market roller coaster continues as traders
continue to asses the ability to move additional pork to China. The
announcement Thursday focusing on a Phase 1 trade deal that would
include scaling back tariff levels still has the market excited. But the
overall lack of details about how this will be implemented and
specifics of what each side is looking for continues to be a major
sticking point that could quickly turn the recent positive support into
another market retreat. The fact that the timeline of the two powers
meeting is gravitating to sometime in December is once again a major
factor that will limit overall market bearishness. There is also a
growing realization that China may continue to delay any substantial
action on the trade war until the results of the presidential election
next November. If Trump is not reelected, this could significantly
change the playing field on which both sides have been playing. Early
trade Friday is mixed, with underlying fundamental support likely to
limit aggressive widespread pressure through the complex, although any
additional morning news tidbits may spark short term market swings. Cash
hog values are expected to be $1 higher to $1 per cwt lower, with most
bids expected steady to weak. Expected slaughter Friday is at 484,000
head. Saturday runs are expected at 243,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Strong underlying futures support is holding through feeder cattle trade through the end of the week. Traders appear to be willing and able to test short-term resistance levels of $146 per cwt in January futures. A move above this level would post six month highs, signaling additional technical support through the end of the year. | 1) | Given current cattle supply levels, the short-term upside market potential appears to be limited over the next couple of weeks. This could allow prices to create a holding pattern through the end of the year. |
| 2) | Stronger cash cattle trade started to develop Thursday afternoon in the North. Prices generally $1 to $2 per cwt higher than last week continues the string of positive weekly moves seen over the last two months, helping to build additional momentum through the entire complex. | 2) | Seasonal demand pressure for beef is expected to continue over the near future, likely limiting additional upward movement in wholesale and retail beef prices. This could reduce packer margins through the next couple of months. |
| 3) | Strong gains seen in February futures Thursday is helping to solidify expectations that additional fundamental support is building through the complex as traders focus on an expected uptick in pork demand through the end of the year. | 3) | Additional cash market pressure is developing in cash hog values with the national weighted average testing $45 per cwt at the end of the day Thursday. This underlying cash market weakness continues to indicate the burdensome levels of market ready hogs in the system. |
| 4) | Thursday's positive trade announcement that headway is being made on a Phase 1 trade deal, which would including rolling back tariff levels is likely to carry weight early Friday morning as traders focus on moderate progress that is keeping negotiations from breaking down. | 4) | Without any trade agreement in writing, and being signed, only limited price support is expected to be seen in hog futures. The expectation that any major meeting by the two parties will be delayed until at least December still leaves a lot of room for uncertainty when it comes to export support for pork. |
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| #completeherdhealth |
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