General Comments:
Cash cattle trade remains undeveloped heading into Tuesday morning following limited overall direction Monday as the focus on surging futures prices and outside market gains left packers unwilling to quickly step into the market and feeders more optimistic about pricing cattle as the week continues. Last week's 5-state average price settled at $106.33 per cwt. Although this continues to be $2.09 per cwt higher than the previous week, it still falls short of where most trade was expected to have been sold through the week ($107). The fact that average prices have consistently failed to meet reported price levels during the week is concerning and indicates that there is more cattle selling at the low end of the price range that are being overlooked and not well reported. This should be closely watched through the remainder of the year as this could potentially indicate the amount of lower quality cattle, or other significant discounts on cattle moving through the system. It is expected to be Wednesday or later before active bids and asking prices are seen, but the underlying support in the market is creating expectations higher prices, with many looking for a $2 to $3 per cwt gain during the week. Futures trade is expected to retain the market momentum seen Monday. It is hard to break away from the traditional mindset that $3 per cwt is the daily trading limit following the increase to $4 per cwt in live cattle and $5 per cwt in feeder cattle earlier this fall. The strong triple-digit shift helped to create renewed support, although most of the gains rode the coat tails of outside markets most of Monday's session. Although the tone of the market is expected to be firm, the potential for mixed trade may develop as traders try to adjust positions as the week continues.
Lean hog futures continue to show underlying support, although the ability to hold narrow-to-moderate gains at closing bell compared to aggressive support in most all other markets is expected to be generally disappointing for the lean hog complex. The focus on the potential for a viable COVID-19 virus by next spring continues to spark underlying market optimism in a market and complex that has been riddled by bad news and uncertainty over the past year. The day view of the pork cutout contract Monday gained some attention, although at this point it appears there were six contracts traded with an open interest of four contracts. In order for this to become a significant player in the market and generally useful contract, open interest will need to increase significantly over the near future, otherwise these contracts will mean relatively meaningless as they just remain idle on the CME. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady 50 cents higher. Slaughter Tuesday is expected at 490,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Sharp triple-digit gains in all nearby live cattle futures has quickly distanced markets from seasonal lows, moving $8 above long-term support levels in October. This is expected to create additional momentum across the entire complex over the upcoming days. | 1) | Sharp gains on Monday has the potential to spark widespread and volatile market swings in the upcoming days. Since most buying interest was driven by general market news and outside markets, the potential for a significant market correction needs to be closely watched. |
| 2) | Boxed beef values continue to gain strong upward momentum. With boxed beef prices posting gains each day for nearly two weeks, the expectation of further underlying support is developing as traders move away from seasonal lows. | 2) | Despite the aggressive market gains, beef market fundamentals continue to see little change over the last couple of weeks. This still leaves uncertainty about overall beef demand and the threat of increased COVID-19 cases having a significant impact on the ability to move current beef supplies. |
| 3) | Spring and summer 2021 lean hog contracts continue to gain momentum over the last two weeks. This has helped to not only support price levels, but increased buying interest moving back into these contracts is sparking further market optimism. | 3) | Packers continue to run at "break-neck" speeds through the fall and winter months. With the midweek Veteran's Day holiday slightly limiting production Monday and upcoming Thanksgiving Holiday, keeping the market current will remain a challenge. |
| 4) | Strong underlying support developed in cash hog trade Monday. This has the potential to spark increased buyer momentum given the firm gains in futures and pork cutout values. | 4) | The inability for lean hog futures to hold aggressive triple-digit gains at closing bell Monday, while cattle futures held onto aggressive gains adds concerns that buyers may not be willing to push prices significantly higher at this point. |
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| #completeherdhealth |
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