Additional cash cattle trade is expected before the end of the week despite the significant pressure in futures and beef values this week. Following light trade Wednesday at significantly lower money than last week, both sides seem to have hit "pause" given the limit losses in futures trade Thursday. But packers are expected to need additional cattle in the next couple of weeks, which may spark renewed bid activity during the day on Friday. Negotiated trade could be even lighter than in the last few weeks due to the availability of contracted cattle to packers after the first of the month. The JBS plant in Pennsylvania has been shut down the last two weeks due to the coronavirus, and even though it is generally small in comparison to major packing plants, it is the largest plant in the Eastern U.S., which is creating a disruption of supplies for cattle producers within the region. The concern that other plants within the system, especially in the Midwest, may need to close due to virus levels continues to be a major concern. Following limit losses in live and feeder cattle Thursday, expanded trading limits are in place once again. This could spark renewed bearish market factors as traders search for any sign of support. With the weekend approaching, the hope that end-of-the-week short-covering will be able to take root and give a little relief to the sharp market losses that developed in early April. Friday slaughter is expected at 119,000 head.
The underlying weakness in lean hog futures has been intense the last two weeks. In that period, April lean hog futures have fallen over $20 per cwt, sparking incredible losses not only in futures trade, but also across wholesale pork markets and cash hog prices. The intense focus on price erosion is still limiting additional potential for a market rally to develop due to the uncertainty in domestic and export pork demand over the near future. Even though China export sales last week ranked first in the weekly export sales report, with nearly half of the entire sales going to China, the concern is that the coronavirus continues in China. It is unreported but is adding long-term pressure to the market. Further erosion is likely in pork cutout values as overall consumer demand for pork is expected to be limited, especially heading into the Easter season as family gatherings and celebrations may be significantly limited around the country and world. Cash hog prices are called steady to $2 lower with most bids expected $1 per cwt lower. Slaughter Friday is expected at 491,000 head. Saturday runs are expected at 136,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Given the extremely bearish market direction, bullish market factors are hard to uncover. The expectation is that pressure in cattle and beef trade will be short term, with market corrections likely when the COVID-19 crisis ends, which is giving long-term hope to the industry. | 1) | Limit losses in live and feeder cattle trade the last two sessions has sparked underlying weakness and significant chart damage during early April in all cattle trade. This could continue to add technical weakness to the complex at the end of the week. |
| 2) | Despite the significant and sharp turn lower in beef values this week, prices are still trading significantly higher than in early March. This could keep beef values elevated through the month of April. | 2) | Eroding beef demand is creating significant losses in boxed beef values as consumer buying patterns are quickly changing as they focus on the potential for cutting back consumer spending over the near future. |
| 3) | Limited contract liquidation is seen in lean hog trade through the bearish shift lower in prices. Open interest has actually increased the last two trading days, creating limited selling in the market despite the lower price levels. | 3) | Another round of sharp cash hog losses Thursday is pointing to the limited interest of packers as they follow the futures market lower and are starting to pull back from the aggressive buying nature during the last couple of weeks. |
| 4) | The market continues to remain extremely oversold, with increased underlying pressure during the last two weeks. This could quickly spark renewed buyer support in the market due to the light trade volume and need for only a limited amount of support to start the ball rolling in a positive direction. | 4) | April lean hog futures have fallen over $20 per cwt in the last two weeks, with expanded trading limits Friday creating the potential to expand that widespread market loss heading into the weekend. |
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