Outside Forces Bearish to Cattle
With the outside market forces turning very negative this morning, and with increased concerns that Covid restrictions could slow short-term restaurant demand, the market may setback in the recent consolidation range today. However, the supply fundamentals seem to be improving recently and this looks to continue over the next several months, and beef prices remain at record highs for this time of the year indicating very strong demand. For the USDA Cattle-On-Feed report, traders see July placements down 7.1% with a range of -9.3% to -4.5%. Marketing’s for the month of July are expected to be down 3.6%, with a range of -4.8% to -2.5%. As a result, traders see August 1 cattle on feed supply at down 1.8% with a range of -2.3% to – 1.2%.
While the cash market continues to inch lower, futures have priced in an enormous break and this has left the market in a deeply oversold condition. Cash fundamental news remains sloppy but the extreme discount of futures to cash is limiting the selling from speculators. The CME Lean Hog Index as of August 16th was 109.64 down from 109.67 the previous session and down from 110.77 the previous week. This leaves October hogs trading at a $20.62 discount to the cash market as compared with the 5-year average discount of $6.62. In other words, if the market was trading a normal basis, October hogs would be trading at 103.02.
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