Tuesday, March 24, 2020

Tuesday Morning Livestock Market Summary - Further Future Gains Expected on Meat and Cash Support

GENERAL COMMENTS:
The limited cash movement on Monday is not enough to create a good market test, but it does point to the expectation that cash cattle trade will be substantially higher when the dust settles. The continued surge higher in wholesale beef values has sparked follow-through interest in all areas of the cattle complex. Bids are expected over the next couple of days, with the expectation that a starting point will be near $120 live and $180 per cwt and higher, but with the combination of surging early week futures trade and higher beef values, feeders are expected to ratchet up asking prices through the upcoming days. Expanded trading limits will be seen in all cattle futures with live cattle limits at $4.50 per cwt while most feeder cattle limits will be $6.75 per cwt. Due to the near expiration of March feeder cattle futures, the daily trading limit will be $10 per cwt in March feeder contracts only. The ability to maintain market support through the Tuesday session and break out of the yo-yo market trend seen over the last couple of weeks will be essential in helping to establish longer-term market support. Tuesday slaughter is expected at 121,000 head.
Lean hog futures seem to be the quiet market in the livestock complex the last several days. With limit gains in nearby lean hog contracts Monday, the potential for expanded trading limits redevelops, allowing for increased market swings in most contracts. Currently April lean hog futures are within 43 cents of erasing the extreme market losses over the last two weeks with spot-month contracts potentially able to move to and above the $65 per cwt resistance levels on March 10. With strong underlying support quickly building in pork cutout values due to extreme consumer demand as well as widespread market strength in outside trade during the overnight hours, the focus on higher nearby lean hog futures is likely to stimulate additional buyer activity. The inability to carry firm gains through the rest of the complex as late summer and fall contracts have struggled to keep pace with nearby gains, is a reflection that strong pork production will continue through most of the year and growing uncertainty of export demand to China remains a major factor to long-term market prices. Cash hog prices are called 50 cents lower to $2 higher with most bids expected steady to $1 cents higher. Slaughter Tuesday is expected at 497,000 head.
BULL SIDEBEAR SIDE
1)Strong underlying support is starting to develop in cash cattle trade as feeders focus on taking advantage of the extreme gains in beef values over the last week. This should keep feeders aggressive when setting asking prices and could push active trade to the end of the week once again.1)Cash cattle trade still remains at a significant discount to the wholesale beef market. This may limit the upside market potential as concerns that long-term consumer demand will quickly erode as the aggressive panic buying of meat starts to slow. This could create another tailspin through the cattle complex.
2)Limit gains Monday combined with strong underlying support in several outside markets during overnight trade is pointing the potential for aggressive follow-through buyer activity early Tuesday. The ability for traders to work with expanded trading limits of $4.50 per cwt in live cattle and $6.75 per cwt in most feeder cattle futures has the potential to rekindle aggressive noncommercial buyer support looking to step back into the game following the last two weeks of widespread liquidation.2)Food service and institution buying of meat has essentially halted over the last week due to coronavirus concerns and restrictions put into place on gathering sizes. The additions of "stay put" orders across a few states is likely creating additional uncertainty through the entire complex.
3)Limit gains Monday combined with strong underlying support in several outside markets during overnight trade is pointing the potential for aggressive follow-through buyer activity early Tuesday. The ability for traders to work with expanded trading limits of $4.50 per cwt in live cattle and $6.75 per cwt in most feeder cattle futures has the potential to rekindle aggressive noncommercial buyer support looking to step back into the game following the last two weeks of widespread liquidation.3)Growing concerns surrounding the future trade relationship with China and how this will impact pork values is adding even more market pressure in deferred futures. This will bring about potential wide market spreads between spring and summer lean hog contracts.
4)Underlying support in cash hog prices and pork cutout values has sparked renewed fundamental support through the entire lean hog complex. This could help to continue to push prices higher through the end of the month based on domestic consumer demand support rather than focusing exclusively on export trade.4)Limited support in deferred contracts creates increased caution through the entire lean hog market. The uncertainty that current consumer demand for pork will continue through the upcoming weeks and months is limiting active support in late 2020 contract months.



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