Thursday, January 23, 2020

Thursday Morning Livestock Market Summary - Lean Hog Futures Attempt to Regain Recent Losses

GENERAL COMMENTS:
Cash cattle activity broke lose Wednesday afternoon with light-to-moderate trade developing in the South. Trade ranges were wide, from $119 to $124 per cwt, although most trade developed at $124 per cwt, which is fully steady with last week's prices. The stability in the market will go a long way in helping create further market support through the end of the week and likely the rest of January. Although a few cattle traded in the North, it is too early to determine where price levels will fall or call a market trend due to the limited activity. More interest is expected in the next two days, but it would not be surprising if some trade does not develop until after the Cattle on Feed report is released Friday afternoon. Early expectations are that total on feed numbers will shift higher 1% to 2% with the average estimate 2.2% higher than year-ago levels. Estimated December cattle placements are expected to be 3.2% above year-ago levels, while December cattle marketing is pegged at a 5.2% increase from 2018 levels. The continued lack of support in live cattle and feeder cattle futures is creating lackluster interest in the complex. This may add increased uncertainty, although there is limited expectation of strong follow-through pressure developing in live cattle trade over the near future. Feeder cattle futures on the other hand, have continued to weaken as traders near support levels, so there is the potential for increased softness to develop through the end of the week. Thursday slaughter runs are expected near 122,000 head.
Lean hog futures continue to work hard to push prices away from support levels through the last half of January. After establishing short-term lows last week, the back and forth shifts in lean hog futures prices have helped to bring about increased buyer support in the complex. Although there is continued uncertainty about being able to offset growing supply with the potential of increased export demand to China, the market remains in a narrow, but slightly bullish direction through the end of the week. Cash hog prices are called steady to $1 higher with most bids expected steady. Slaughter Thursday is expected at 497,000 head. Saturday runs are expected at 332,000 head.
BULL SIDEBEAR SIDE
1)
Live cattle futures have been generally unaffected by the sharp pressure developing in feeder cattle trade the last two weeks. The potential for market stability in nearby live cattle contracts is pointing to the expectation that additional buyer support may be waiting in the wings.
1)Continued strong pressure in feeder cattle activity is causing additional long-term concerns through the entire cattle market. Nearby feeder cattle futures have tumbled nearly $4.50 per cwt in the last two weeks, creating additional concern about prices being able to break through support levels and sparking increased liquidation in the coming weeks.
2)
Continued focus on tight cattle supplies the next couple of months is keeping a bullish market tone in the complex as overall beef demand continues to remain firm during early 2020 and is expected to increase as spring continues.
2)Strong premiums in nearby live cattle futures compared to summer contracts continue to point to growing summer supply levels and the potential for long-term pressure to develop across live cattle futures during the remainder of the year.
3)
Firm midweek gains in cash hog values and wholesale pork prices is pointing to limited but supportive fundamental support in lean hog trade through the last half of January.
3)Despite the recent boost higher in price levels, the current production levels are expected to limit significant market support in the near future.
4)
Traders are looking forward to the weekly Export Sales report, which will be released on Friday due to the holiday earlier in the week. Strong export sales reported to China last week and following the trade deal signing is likely to spark renewed active futures market interest.
4)With so much emphasis on increased trade to China through the upcoming year, limited sales or shipments to China in Friday's Export Sales report may create strong market pressure. Even though logically, it may take weeks or months to implement the newly-signed trade agreement, the focus on quick sales seems to be keeping traders optimistic.



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