General Comments:
There is limited activity in cash cattle markets heading into Wednesday morning. The underlying support in futures trade is creating some hope that cash activity will break away from the lower moving trend, but there still remains concerns of further seasonal pressure and eroding beef values, which is likely to cause packers to limit upside potential when bids actively develop over the next couple of days. Asking prices on live cattle are expected to remain at $105 to $107 per cwt, although the uncertainty of just how many cattle packers will need to fill procurement slots over the next couple of weeks may be a major factor in pushing cash values higher through the end of September. With last week's average cash price at $101.21 per cwt, the concern that further pressure in boxed beef values will add even more pressure to cash values, moving them even closer to the $100 per cwt price point. Tighter supplies continue to be the focus over the next several weeks, given the light spring placements now scheduled to be at market weight. But the concern that current weights still remain elevated indicates there is still some cattle remaining from the backlog over the past several months. This is likely to limit any significant shortage of cattle through the next several weeks. Live cattle futures are expected mixed in limited trade early Wednesday morning. The ability for December futures to hold price levels above $111 per cwt will continue to limit widespread price pressure during the week, although traders appear to be taking a short-term view of the market during mid-September, which will put more emphasis on cash values and the daily movement in wholesale beef prices.
Price volatility is expected to continue in lean hog trade as traders still are trying to get a better grasp to the short- and long-term implications of Germany essentially out of the export market outside of Europe. This will no doubt help to increase the value of U.S. pork and spark increased export sales over the short and long term. But the question of if Germany can renegotiate trade based on individual areas affected with countries like China and South Korea will have a dramatic impact on the need to increase exports from the U.S. in the near future. The surge higher in lean hog prices indicates that a strong market impact is likely, but at this point, it is still unclear just how far-reaching that impact will be, and if it will be able to push lean hog futures even higher over the next several days. Cash hog prices are expected $1 lower to $2 higher with most bids expected steady to $1 higher. Slaughter Wednesday is expected at 485,000 head. Saturday runs are expected at 192,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | With live cattle futures surging nearly $3 per cwt higher over the last week, the expectation that cash cattle trade will be steady to higher is gaining additional momentum. This is keeping feeders aggressively focused on higher asking prices, potentially not breaking away from these levels until late in the week. | 1) | Further weakness in boxed beef values is creating some underlying concern about the sustainability of recent futures gains. Recent gains have been driven by outside market moves and could quickly lose buyer support if beef market fundamentals do not shift higher. |
| 2) | Feeder cattle futures continue to actively march higher with triple-digit gains redeveloping Tuesday in nearby trade. The expectation that nearby feeder cattle trade hit seasonal lows last week is quickly bringing buyers back to the complex. | 2) | Cash cattle prices remain under pressure given the firm market losses over the last couple of weeks and expected limited need for packers to aggressively buy during the month of September given the active cash purchases during August. The inability to narrow the gap between futures and cash values is expected to add pressure to the entire complex. |
| 3) | Pork values surged higher Tuesday, as evidence that recent gains in futures trade has cleared the wholesale meat market with traders focusing on moving additional product to domestic and export markets over the near future. This is creating the expectation of further support through the rest of the week. | 3) | Losses Tuesday in most lean hog futures contracts created concern that the early-week rally may be over for the short term. Traders are now focusing on actual changes in pork sales, which may take weeks to develop, and could limit further market momentum. |
| 4) | Cash hog prices continue to actively move higher, further narrowing the gap between cash and futures values. This is creating further long-term support in the market as traders expect the higher cash values will be maintained through the near future. | 4) | Hog supplies still remain heavy in most areas, creating concern of fall and winter pork demand keeping up with the current production levels over the near future. This may limit further support in futures trade and pork cutout values during the next two weeks. |
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