General Comments:
Cash cattle trade may continue to be a slow and dreary event through the week with light cash trade developing Tuesday $2 to $3 per cwt lower than last week but generally steady with initial early week trade. Live Southern trade remains at $105 to $106 per cwt, mostly $106, while dressed trade in the North is limited, but generally $166 per cwt. It is likely asking prices will probably hold around $108 live and $168 and higher dressed. What is not known yet is how aggressive packers will be with bidding cattle over the next couple of weeks or percent of needed purchases they will attempt to acquire before Friday's Cattle on Feed report. Analyst estimates for the upcoming report peg overall cattle on feed numbers at 103.3% of year ago levels, while placements are expected at 102.5%. September is expected to have been a strong marketing month compared to a year ago (post Tyson plant fire levels) with 105.9% of cattle marketed compared to September 2019. Futures trade is expected to see additional price stability, although the likelihood that prices will be mixed during morning trade is very high. Tuesday's wide, triple-digit price swings in either direction sparked opportunities for traders to square positions as they try to adjust to the new price ranges that have developed over the last week.
Lean hog futures simply ran out of gas Tuesday as the extreme price acceleration seen over the past several weeks quickly came to a halt. Although prices have adjusted lower, that does not mean the market will quickly change course as there is still aggressive market support building under the complex. Well above the 40- and 100-day moving average, expectations are that buyer support will remain in nearby and deferred lean hog contracts after the current correction. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to firm. Slaughter Wednesday is expected at 488,000 head. Saturday runs are expected at 238,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Strong, triple-digit gains redeveloped in deferred feeder cattle futures. This is reinstalling active buyer support during early 2021, as buyers try to adjust to the discounted price levels seen during mid-October. | 1) | Eroding open interest in live cattle futures is adding underlying concern to the entire complex. This may limit active buyer movement back into the market as prices struggle to break away from current levels. |
| 2) | Open interest continues to improve in feeder cattle futures, sparking further indications that a market bottom has either been established or is near. This may trigger follow-through buyer interest in both live and feeder cattle futures. | 2) | Following Monday's market tumble, December live cattle futures quickly and aggressively broke out of their sideways trading range. This moved prices well below 40- and 100-day moving averages, causing concerns about further widespread price losses. |
| 3) | Active pork movement continues to develop in domestic and export markets. The focus on actively moving product despite aggressive production levels that will continue through the end of the year will likely limit downside market pressure in lean hog futures. | 3) | Spot December lean hog futures led the move lower Tuesday, sparking not only a market correction, but pushing prices back below $70 per cwt. This may leave traders uncertain about moving back into the complex. |
| 4) | Cash hog values have started to regain buyer support as packers continue to remain aggressive to maintain the active processing schedules seen during the fall months. | 4) | Export business may continue to be volatile and unpredictable on a week-to-week basis. Although firm underlying support is still expected over the coming months, markets will negatively react to limited product movement in weekly export reports, potentially keeping futures trade shifting in a volatile and unpredictable fashion. |
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