General Comments:
Activity in the cash cattle market has been extremely limited so far during the week with both sides likely to wait until the last half of the week. It appears there is little urgency by either side to ink deals before the end of the month, likely pushing most trade into Thursday or Friday. The underlying support in futures trade and stability in beef values is creating the potential for another round of moderate-to-firm cash price support. The question of just how many cattle packers will need to acquire during the first full week of October will be the limiting factor on just how aggressive bids become through the next couple of days. Trade attention through the morning will be firmly affixed to the direction of nearby live cattle and feeder cattle trade. The strong triple-digit gains in live cattle and feeder cattle futures Tuesday not only created underlying end of the month momentum, but December live cattle futures quickly moved through previous short-term highs of $112.27 set last week, putting price target levels near $114 per cwt. A move to this level before the end of the month would help to spark renewed bullish technical support through the entire live cattle complex, likely sparking renewed noncommercial support to move back into cattle trade during the fourth quarter of the year. Fundamentally, traders are looking for tighter supplies of market-ready cattle over the next six weeks, which should help to support cash values as packers continue to maintain current procurement levels.
Lean hog futures remain weak going into Wednesday trade, although the strong sell-off Tuesday is likely to create limited early market movement midweek. Although significant questions remain about long-term demand for pork from domestic and export growth through the end of the year, traders continue to focus on the growing supply levels within the coming weeks. The fact that abundant market-ready hogs will be available to the market during the month of October and most of November is not new and should not be a surprise to any market watcher. But the focus over the last three weeks has shifted from known supply growth, to potential export demand strength in order to make up for German pork exports banned in most countries. This expectation that significant price gains can be maintained is losing momentum, although prices remain well above prices when Germany discovered African swine fever within its borders. Given the volatility over the last several days, traders are likely to focus more on end-of-month position squaring given there is little fundamental market news expected Wednesday. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady. Slaughter Wednesday is expected at 485,000 head. Saturday runs are expected at 179,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | December live cattle futures quickly blew through short-term resistance levels Tuesday, moving above $113 per cwt. The strong end of the month buyer support has the potential to establish monthly highs at the end September, while late summer resistance levels near $114 per cwt. | 1) | Continued concerns of short-term beef demand growth may limit the ability to sustain recent price support in live cattle futures. This will likely continue to leave markets moving in a wide price pattern during the month of October. |
| 2) | Feeder cattle futures are quickly moving away from last week's lows, creating moderate-to-strong momentum through the complex. November futures have rallied over $3.50 per cwt in the past two trading sessions, with the potential to close the month of September at the highest level since mid-August. | 2) | Volatility in feeder cattle futures over the last month is expected to continue during the fourth quarter of 2020. This may severely limit upward market support over the near future with November futures likely to hit significant resistance levels near $145 per cwt. |
| 3) | Strong premiums continue to hold in deferred lean hog futures trade. This continues to focus on the expected long-term price support and improving market conditions through second quarter of 2021. August and July 2021 contracts continue to hold a double-digit premium to December futures. | 3) | Sharp losses in lean hog futures Tuesday created concerns of widespread follow-through liquidation in all contracts. The ability to hold current price levels opens the door to further market retractions during early October. |
| 4) | Traders in the lean hog futures complex continue to look toward Thursday's export sales report for evidence of potential strong export movements. This support has been partially factored into the market, which could add further stability and buyer interest during early October. | 4) | Hog supplies remain abundant and on the edge of burdensome as packers continue to maximize production levels through the fall months. The inability to slowly but steadily increase packer throughput in the upcoming weeks could add further pressure to lean hog futures. |
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