Cash cattle activity is once again being pushed to the tail end of the week with both sides reluctant to step back into the market given the pressure in futures trade and lackluster support available in wholesale beef values. Asking prices are expected to redevelop Thursday morning at $124 live in the South and $198 and higher dressed in the North. It is uncertain if the few packer bids at $120 live in the North will redevelop early Thursday morning as packers assess overall market conditions. The direction of futures trade early Thursday morning may have a significant impact on the direction and intensity of bids early Thursday. At this point, it would not be surprising if active sales were delayed until Friday given the underlying lack of support through the complex. Futures trade is expected mixed to mostly lower as spillover pressure is likely to redevelop in the complex. Losses Wednesday moved back to October lows, as concerns of overall demand support and potential cash market weakness quickly moved through short-term support set late last week. With early-week gains unable to hold, technical selling pressure once again redeveloped. This could create additional market shifts lower through the near future as traders look for long-term direction across the complex. Thursday slaughter runs are expected near 122,000 head.
Underlying weakness is increasingly evident in the entire lean hog futures complex following active pressure in most contracts Wednesday. Although February futures were able to etch out a 35-cent gain, the pressure in the rest of the complex added increased concerns through the entire market. Active pressure in cash hog values and pork cutout prices sparked the underlying losses, which is likely to continue Thursday given the increasingly bearishness of market fundamentals. Although Monday's lows are holding on by a thread, the potential to break through these levels could add technical pressure to the already weak fundamentals, causing increased concern Thursday morning. Cash hog prices are called $1 lower to $1 higher with most bids expected steady to 50 cents lower. Slaughter Thursday is expected at 496,000 head. Saturday runs are expected at 213,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Boxed beef values have stabilized through midweek, creating hope that even with lower futures prices, underlying beef demand will be able to rally through the upcoming spring months. | 1) | Live cattle futures quickly and aggressively moved through January support levels. This sparked increased underlying pressure in the complex as traders are not trading at or near October lows. The concern of further market weakness may limit buyer support in the near future. |
| 2) | Packers continue to fill plants with aggressive slaughter runs through the week. Estimated weekly slaughter through Wednesday is expected at 365,000, up 3,000 over week-ago levels, and 7,000 head above year-ago levels. | 2) | Growing concerns of cash market losses at the end of the week are not affecting just cash traders, but are impacting futures trade as well. The lackluster interest by packers so far this week may indicate that limited cattle may be purchased, adding to the cash market losses last week. |
| 3) | An announcement by China to reduce tariff levels on $75 billion of imports surrounding the coronavirus issue in the country should help not only spark increased interest in pork exports, but the ability to move more non-ag products to the country. | 3) |
Sharp losses in cash hog and pork cutout values Wednesday is creating additional fundamental concerns about the ability to move the increased amount of pork and market-ready hogs through the spring months. Hog production is expected to remain burdensome to the market over the next few months, limiting concerns of strong market support in the near future.
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| 4) | Traders are looking to the weekly Export Sales report Thursday morning for increased overall pork exports. The amount sold and shipped to China last week will be the main focus of the report, as traders expect increased movement through late January. | 4) | Hog weights continue to remain heavy with the weekly average for Iowa/ Minnesota live hog weights at 286.9 pounds. Even though this is 0.4 pounds under week-ago levels, it still gained 1.3 pounds over year-ago levels. |
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