Slower than expected processing and strong demand supports cattle prices
The cattle market remains in a solid uptrend, with boxed beef values suggesting strong demand.
Packer margins remain very positive, and this has allowed for a steady increase in cash live cattle prices. Improved forward sales, plus an uptick in exports have helped support the uptrend. Given the large supply of heavier-weight cattle on feedlots and the potential for disappointing sales to the restaurant sector, the upside may be somewhat limited. In addition, October cattle already hold a premium to the cash market.
Cash live cattle prices continue to firm. In Kansas, 2,404 head traded at $103 on Tuesday, up from $100 last week. In Nebraska, 140 head traded at $105, up from $102 to $103 last week.
The USDA boxed beef cutout was up $1.15 at midsession yesterday and closed 88¢ higher at $208.08. This was up from $204.24 the previous week. This was the highest the cutout had been since June 29.
October cattle found active buyers yesterday to drive the market to its highest level since March 5. The continued uptrend in the cash cattle market and better-than-expected beef prices lent support. Slaughter has been coming in lower than expected and this has provided underlying support. The USDA estimated cattle slaughter came in at 117,000 head yesterday. This brings the total for the week so far to 230,000 head, up from 229,000 last week at this time but down from 232,000 a year ago.
The market remains in a solid uptrend, but the upside does feel somewhat limited, as bookings for the Labor Day holiday may be nearly complete and restaurant demand continues to struggle. The technical action is bullish, with 109.30 as next upside target for October cattle and support at 107.07. Uptrend channel support is at 106.67 today and 106.95 tomorrow. It will take a close below the uptrend channel to suggest a change in trend.
Too much total meat production; will need export help.
Once again, pork cutout values surged at midsession, yesterday, (up $5.02 on the day) but closed lower on the day. Traders did not fall for the midday volatility, and the market closed sharply lower on the session.
Total meat production looks to be very large in the weeks and months ahead, so it will be very important to see strong pork, beef, and poultry exports. Otherwise it will take lower pork values to clean up the excess supply. China’s WH Group expects pork exports from the U.S. to China to fall in the second half of 2020.
The CME lean index as of Aug 7 was 53.02, up from 52.44 the previous session but down from 53.11 a week before. October hogs closed at a $1.20 discount to the cash market vs. the five-year average discount of $12.95. If the market was trading the average basis, October futures would be down at 38.87!
The USDA estimated hog slaughter came in at 458,000 head yesterday. This brings the total for the week so far to 915,000 head, up from 879,000 last week at this time but down from 931,000 a year ago. The USDA pork cutout, released after the close yesterday, came in at $69.77, down 7¢ from Monday but up from $64.87 the previous week.
MARKET IDEAS: A 50% correction of the April 28-June 29 decline leaves 54.57 as the next key resistance. Support is at 51.22 and 50.32. Resistance for February Hogs is at 62.00, with support at 58.65.
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