General Comments:
Following light cash cattle trade Wednesday in several areas, the focus will return to the ability for feeders to leverage higher futures prices and rising boxed beef values into higher cash cattle trade through the rest of the week. Limited trade has developed at $106 to $107 per cwt live basis Wednesday. Although this is not likely enough to establish an overall tone for the week, the amount of trade is a good indication of where trade is heading. Current trade is steady to $1 per cwt higher last week. Although the support is welcomed, the inability to push for further price support at the end of the week still remains a disappointment given the active gains in futures trade in the last week and a half, as well as a firm upward trend in beef cutout values. It is still uncertain just how many cattle packers are willing to buy this week. Even though trade totals were light last week, the potential is that packers may remain content with limited cash buying over the near future, creating a stark difference from activity levels and buying interest seen during most of October. Strong market gains, Wednesday has not only offset early week losses, but the triple-digit gains in feeder cattle futures have quickly moved through initial resistance levels of $137.40 in December futures set last week. The ability to sustain prices above his level through the end of the week is likely to spark renewed underlying support in nearby and deferred feeder cattle trade, sparking follow-through gains across live cattle trade also. Steady but firm market moves during the first half of November would go a long way in drawing additional commercial support back to the cattle complex, helping to establish a bullish market shift through the end of the year.
Active gains in lean hog futures midweek is setting the tone for additional underlying support developing in late week trade. Initial trade is likely to break away from recent market moves and the direction of pork values, with traders putting increased focus on the weekly Export Sales report, which will be released before the markets open on Thursday. Traders are looking for moderate-to-firm new sales to China as well as other Asian nations, which will give a better indication of the ability to move pork into these areas through the fourth quarter of the year. If overall sales and shipments are seen as disappointing Thursday morning, limited-to-moderate price pressure is very likely, at least early in the session. But traders continue to focus on domestic demand potential through the end of the year as packers continue to aggressively move through the large number of market-ready hogs available to them over the next couple of months. This may further limit the upside potential of lean hog trade, although recent support in cash hog values indicate that further potential gains may test short-term resistance levels in the coming days. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to firm. Slaughter Thursday is expected at 490,000 head. Saturday runs are expected at 278,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Feeder cattle futures have continued to shift higher. Spot November futures have rallied $8 over the last two weeks, quickly establishing seasonal lows and quickly moving through resistance levels as buyers are actively moving back into the complex. | 1) | Negotiated cash cattle prices have continued to lose ground on formula-traded cattle over the last three weeks. This is creating significant concerns about the ability to regain cash market support and sustain active trade volumes through the upcoming weeks. |
| 2) | Boxed beef values have moved steadily but firmly higher over the last week. The ability to regain previous support in beef prices is likely to stimulate additional longer-term strength in both cash and futures trade. | 2) | Live cattle futures have continued to lag in the support seen in feeder cattle trade during early November. This is likely to create additional underlying pressure through the entire live cattle complex as questions remain about the ability to sustain or grow beef demand through the end of the year. |
| 3) | Strong triple-digit gains in lean hog futures, which developed Wednesday is focusing on the ability to spark renewed commercial buyer interest through the entire complex. This change in open interest is likely to lead to longer-term market support in the upcoming days and weeks. | 3) | Despite the support in futures and cash hog values, pork cutout values are still unable to show buyer support. This lack of stability could lead to underlying price pressure through the end of the week. |
| 4) | Traders are closely watching the morning export sales report, looking for increased sales and shipments to China. Active sales last week is likely to spark renewed underlying support in nearby lean hog contracts during morning trade. | 4) | Active market-ready hog numbers continue to create a need to keep procurement levels active not only in the short term, but over the next several weeks. Any hiccup in plant processing speeds due to the inability to keep plant workers healthy and engaged, creates concerns of quickly backing up the pork system once again, like seen earlier in the year. |
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| #completecalfcare |
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