Tuesday, June 23, 2020

Tuesday Morning Livestock Market Summary - Hog Futures Continue to Test Support Levels in August Futures

General Comments:

Cash cattle trade is still generally quiet for the week with just a few trades developing in the North. Dressed trade in Nebraska took place at $152 to $155 per cwt. These prices are near the low end of last week's trading range, but the limited activity and trend for cash cattle trade to trickle in through the week is not enough to indicate a reliable market trend. But given the lack of support in wholesale beef values and further erosion in futures trade, it is likely that the overall cash market will remain steady to weak as the week continues. Futures trade is expected to remain mixed to mostly lower with limited direction through expected early Tuesday morning, but traders still remaining extremely cautious. The general pressure in outside markets as increased media focus is being placed on China and the growing tensions surrounding around trade deals and potential further export business in most markets. Wide shifts in beef stocks at the end of May developed as total beef in freezers fell 13% from April levels, while increasing 2% from year ago totals. This drop is not surprising given reduced plant capacity. But it gives a good barometer to measure overall movement of product through the rest of the summer months. Tuesday slaughter is expected at 120,000 head.

Sharp triple-digit losses Monday seen in nearby lean hog futures trade continues to focus on significant uncertainty through the entire hog complex. The continued tensions between the U.S. and China when it comes to the direction of future trade will continue to keep the hog market extremely volatile as strong exports to China will be needed to continue to move the large amounts of pork through the system as the country moves back from economic shutdowns over the last couple of months. With July futures well below $50 per cwt through late June, and August futures creating the potential to follow in the same direction with prices currently at $51.10 per cwt, the focus on defending further market losses could keep markets generally weak. The strong reduction in pork supplies during May may help to limit the market bearishness as pork stocks fell 24% from April levels at the end of May. This continues to focus on moderate to strong pork movement through the last couple of months as the reduced slaughter levels have quickly adjusted the availability of pork in the supply chain through early summer. But the question of future demand growth not that slaughter numbers have increased will still need to be answered over the coming weeks. Cash hog bids are expected $1 lower to 50 cents higher per cwt with most bids steady to weak. Slaughter Tuesday is expected at 462,000 head.

BULL SIDE BEAR SIDE
1)
Beef supplies have fallen significantly during the month of May with 415 million pounds in freezers at the end of the month. This is a 13% decrease from April levels, further focusing on steady movement of beef demand during the pandemic.
1)
Cash cattle trade posted further weakness Monday despite limited amount of trade developing. This softer trend could further erode cash market support and put additional pressure on cash basis levels which have been weakening over the last few weeks.
2)
Tighter cattle supplies are expected through the end of the year and during early 2021 continues to create long-term market support. This is focusing on the lighter feeder cattle placements during the spring months.
2)
August live cattle futures are slowly eroding lower. A move below $95 per cwt in August futures would likely spark limited follow through liquidation, although technically speaking, the live cattle complex remains well entrenched within a sideways trading range.
3)
Wholesale pork prices have started to stabilize despite the growing increase in slaughter numbers and availability of fresh pork product to the market.
3)
August lean hog futures continue to post new contract lows with technical pressure starting to redevelop in all nearby contract months. The lack of support in the complex could continue to spark widespread losses through the end of June.
4)
Pork stocks fell sharply at the end of May. With reduced slaughter numbers and aggressive consumer buying focusing on meat shortages helped to move significant amounts of pork from commercial freezers into the hands of consumers.
4)
Cash hog values continue to slowly but steadily erode despite the continued focus on increasing slaughter rates in all plants. This is putting even more focus on the amount of hogs available to packers disposal, limiting potential upward market support in the near future.



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