Thursday, October 1, 2020

Thursday Morning Livestock Market Summary - New Month, But Market Uncertainty Continues

 General Comments:

Most cash cattle trade for the week will take place Thursday or Friday, but limited light trade did surface Wednesday. A few deals were reported at $107 per cwt live and $167 per cwt dressed basis. This is $2 per cwt higher than last week, and although not many cattle sold, it is likely to be enough to set the tone for higher cash cattle trade during the rest of the week. Packers continue to focus on reduced supplies of market-ready cattle being available over the next six weeks, while the recent swift move higher in cattle futures has helped to focus on continuing the market rally seen over the last three weeks. Although further aggressive gains may be hard to secure through the end of the year, current market momentum would suggest that the upward push in prices may still have some life left, creating hope and expectations that additional cash market support will develop during the month of October. Sharp losses in feeder cattle futures Wednesday sparked renewed market uncertainty that further pressure may develop during early October. All nearby feeder cattle contracts posted triple-digit losses, quickly moving away from two-week highs, and potentially establishing significant resistance levels near $144 per cwt. Although losses in live cattle trade were not as aggressive as feeder cattle moves, the underlying pressure in the complex is creating some concerns about further unchecked buyer support moving into the market in the near future. Although traders will continue to focus on supply levels slowly decreasing through the next six months, uncertainty about demand growth through the end of the year still weighs on the overall potential support in live cattle trade over the next several weeks. Because it's a new month and quarter, early trade is expected to remain mixed in a narrow-to-moderate range, with the focus split between follow-through market adjustments and short-covering following recent losses.

Early focus in lean hog trade will be placed on the weekly Export Sales report, which will be released before markets open Thursday morning. The ability to measure export sales at the end of last week has been much anticipated by all traders as they wait for concrete evidence of just how much impact bans on German pork purchases will have on the U.S. pork market. It is expected that moderate export sales increases will be seen in several Asian countries, and it will take a strong report to help maintain previous market gains. End-of-the-month positioning Wednesday helped to move prices back away from short-term support levels, but prices remain significantly higher than during the entire summer based on increased potential global export demand. It appears that nearby lean hog contracts are establishing a market range between $61 and $66 per cwt in December contracts, which may contain market activity through the near future. Although front-month October futures remain well above $72 per cwt, these contracts are becoming lightly traded with December futures the most actively traded contract month. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady. Slaughter Thursday is expected at 486,000 head. Saturday runs are expected at 202,000 head.

BULL SIDEBEAR SIDE
1)

Strong cash cattle gains are starting to develop, with midweek sales posting $2 per cwt gains in most areas. The focus on firm, but significant price gains through the month of September is creating expectations of additional strength developing within the fourth quarter as market-ready cattle supplies will tighten.

1)

Sharp end-of-the-month losses in feeder cattle trade shook previous market support and caused concern of further losses in the near future. November feeder cattle prices fell $1.72 per cwt, breaking away from previous short-term highs, with traders unable to move through resistance levels at $144 per cwt. This could establish a well-entrenched sideways trend, which could last through most of the year.

2)

Firm end-of-the-month gains developed in boxed beef values Wednesday, helping to create underlying market firmness heading into the month of October. Although gains were limited, there is potential of more narrow-to-moderate gains during the upcoming days and weeks, which will likely spark renewed confidence in the complex.

2)

Short-and long-term beef demand growth continues to be a major concern to live cattle traders. Although retail beef movement remains strong, the concern about the health and regrowth of food service demand, including sit-down restaurant business will be a significant factor in moving additional high value beef cuts.

3)

Cash hog values have pushed higher once again at the end of September. Despite concern that higher cash spending may have run out of steam, packers remain aggressive, sourcing market-ready hogs going into the month of October.

3)

Uncertainty about how active recent export sales have been will keep markets uneasy Thursday morning. Although traders expect firm support in the morning report, anything but positive sales and shipment numbers will likely be viewed as bearish for the lean hog complex in general.

4)

Pork exports on the weekly Export Sales Report Thursday morning will be the center point of attention through most of the morning. Traders are expecting moderate new export sales to several Asian countries, helping to solidify the recent support in futures trade.

4)

Packers continue to post strong daily and weekly procurement levels with the desire to steadily increase flows weekly. This active movement has started to create moderate delays due to mechanical issues developing as individual plants. Due to the constant desire to keep slaughter numbers aggressive through the upcoming weeks, these breakdowns and delays will likely become more frequent and disruptive to the entire procurement process through the rest of the year.






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