Activity in the cash cattle market is expected to remain subdued once again, although by the end of the day, it would not be surprising if there were a few asking prices. Although the general tone of the cash market appears to be steady given the upcoming holiday weeks and commitments packers already have, cattle will likely be priced well above last week's averages with heavy negotiations likely late in the week. There seems to be little incentive for either side to change ownership of cattle early in the week, leaving expected trade to develop Thursday or Friday. Futures is expected to be mixed with light-to-moderate short-covering possible through the early minutes of trade. Following contract highs last week, and the ability to move prices out of the sideways trend, underlying support still remains solid going into the holiday week. One of the main factors through the end of the year is the amount of volume stepping into the market on a daily basis. With the holiday's quickly approaching and cattle futures planted at the top end of the trading range, some traders may start checking out of the market until after the new year. Monday slaughter runs are expected at 121,000 head.
The underlying tone of the lean hog complex continues to remain firm following the momentum built the last two trading sessions. Although there are still questions concerning the partial trade agreement announced Friday, the focus on a more positive trade relationship and China's need for protein due to African swine fever puts U.S pork in a position to help fill that demand. Traders will continue to closely watch export sales reports through the end of the year in order to get a feel for any significant change in commitments either for short- or long-term needs from China. Although the tone of the market remains bullish, the $4 to $5 per cwt rally in nearby contracts is leaving the complex ripe for a light-to-moderate correction. With two consecutive holiday weeks approaching and both landing in the middle of the week, overall volume through the end of the year is expected to be variable and generally unpredictable. This could leave to some odd and uncharacteristic market shifts in the coming weeks. Cash hog prices are called steady to $0.50 per cwt higher Tuesday morning with most bids expected to be steady. Slaughter Tuesday is expected at 494,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Spot February live cattle futures set new contract highs Wholesale beef values have started to show light-to-moderate market correction with firm gains the last two days. This ability to dig prices out of the freefall the last two weeks is helping to firm the underlying market tone through the end of the year. | 1) |
Packers appear to already have a portion of cattle sourced through the end of the year. With limited plant needs during the holiday weeks, this will alleviate some of the pressure to pay higher prices for cattle the next couple of weeks, despite expected supply tightness in the near future.
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| 2) | Strong underlying support by commercial traders through the end of December continues to keep nearby live cattle at the top end of the trading range. This technical support creates potential to set contract highs in nearby contracts through the end of the week. | 2) |
Firm pressure in feeder cattle trade followed another strong move higher in grain and feed trade Monday. Continued support in grain markets through the rest of the week could further damage the strong market rally in spring and summer feeder cattle trade, which has developed through early December.
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| 3) |
Cash hog values continue to trickle higher, as packers continue to aggressively source hogs ahead of the holiday weeks. Even though slaughter disruptions are expected through the end of the year, active packer buying will likely keep cash markets well supported.
| 3) |
Sharp losses in wholesale pork values Monday created some questions about the ability to sustain strong upward movement in the complex and strength of market fundamentals through the end of the year.
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| 4) |
Strong gains in nearby lean hog futures the last week has sparked renewed technical support, although limited fundamental changes have yet to be seen. Additional expectations of strong underlying market support based on announced trade deals with China will likely build optimism through the complex.
| 4) |
Given the strong rally in lean hog futures last week, the potential for a light-to-moderate price correction is developing. This could be even more prevalent as traders trickle out of the market the next week ahead of the Christmas and New Year's holidays.
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