General Comments:
The direction of weekly cash cattle trade will be front and center in the minds of most market participants, although limited interest is likely Monday. Monday's activity is expected revert back to the traditional showlist distribution and inventory taking while bids and asking prices are not likely until later in the week. Cash cattle trade last week set the tone midweek last week with limited cleanup activity through the end of the week. With prices mostly $1 per cwt lower as the dust settles, the wider full range of trade was at $109 to $112 per cwt live and $172 to $175 per cwt dressed. This wider range is what could create increased volatility through the market early in the week as this could once again impact overall average prices, which will not be seen until midmorning Monday. Packers need to source active cattle supplies for end-of-year needs, and this is likely to limit additional downside market pressure, but cash markets will need a little momentum shift from futures and boxed beef prices through the upcoming days. Live cattle futures remain under light-to-moderate pressure with the tone of the market shifting lower through the end of last week. This accounted for triple-digit weekly losses in nearby live cattle futures, although feeder cattle trade was able to limit downside pressure last week. December contracts continue to be well watched, although February futures remain the most actively traded contracts. With December futures falling below $110 per cwt through the first week of December, continued firm market pressure keeping prices below this level may quickly discourage active buyer interest in the near future. February live cattle futures are also targeting the $113 to $114 per cwt range and moves through the next several days have the potential to set the tone of cattle market through the end of the year.
Despite the renewed support in pork cutout values late last week, the firm pressure in lean hog futures trade continues to add uncertainty in the entire complex. Even though lean hog futures showed no significant weekly losses, the stark difference between the first half of the week and second half led to the development of a weaker market curve in all nearby contracts that sparked moderate trader concern. February lean hog futures have tumbled more than $2 per cwt in the past three trading sessions as concerns of demand growth and higher production costs continue to add uncertainty through in the complex. This may add even more volatility during early week trade with traders closely focusing on meat market direction and outside market shifts as they slowly enter the market Monday morning. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady 50 cents lower. Slaughter Monday is expected at 492,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | After firm pressure last week, buyers have a potential to step back into nearby live cattle futures, sparked by underlying firm demand support through the next few weeks. | 1) | Continued pressure in boxed beef values has caused further market damage to live cattle and feeder cattle expectations. Choice cuts have fallen $10 per cwt in the last week, creating concern of further active pressure during the month of December. |
| 2) | Even with recent pressure in boxed beef prices, the cash market still remains undervalued given the lack of ability to keep up with meat market gains over the last month. This is creating expectations of steady to higher cash cattle trade to develop over the coming weeks as feeders look for a piece of the market support and packer margins over the last few weeks. | 2) | Weakness in cash cattle trade last week is adding to concerns that further fundamental market weakness may develop. With limited packer needs expected the last two weeks of December, cash market support may be limited until early 2021. |
| 3) | Strong late week gains in wholesale pork values is expected to add firmness to the lean hog complex during early week trade. | 3) | Firm cash hog market pressure over the last couple of trading days has created renewed concerns that packers will remain aggressive in bidding hogs as 2020 comes to an end. The lack of support in cash values is likely to limit further support in futures trade. |
| 4) | Active end of year pork movement before and through the holiday seasons, combined with expected strong export sales over the upcoming weeks is likely to help solidify pork and hog prices in the near future. | 4) | Actively traded February lean hog futures have fallen over $2 per cwt in the last three trading sessions, but if they cannot draw any buyer interest Monday morning, there will likely be follow-through liquidation in most nearby contracts, further weakening the entire tone of the market. |
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