General Comments:
Light cash cattle trade started to develop Wednesday with live cattle trade in the South selling for $111 per cwt. This is generally $1 per cwt higher than last week and will help support the underlying end-of-year support moving into the market as feeders focus on increased need for packers to gain steady and increasing market-ready cattle through the month of January. Dressed cattle futures posted a $2 to $4 per cwt gain from last week's average with prices Wednesday at $175 to $176 per cwt. It is likely that the tone for the market has been set, although the potential for additional light clean-up trade exists through the New Year's Eve. It is still hard to define just how many cattle sold as much of the trade developed following the cutoff time for Mandatory reporting. The ability to drive additional, but light price support into cash markets following the pressure in futures trade is creating some expectations that further market support will develop over the next couple of weeks. Feeder cattle futures remain weak heading into the last trading day of 2020. The renewed buyer support in corn trade and seemingly unstoppable price gains in the market will have significant short- and long-term impacts for the entire livestock complex. Triple-digit losses over the last two days in nearby feeder cattle futures have started to factor in the higher feed prices, but the impact of the aggressive corn market moves are not expected to be fully worked through the cattle complex. This could lead to additional market softness in the coming days. The question is whether selling pressure will be seen before the end of the year or hold off until January. Trade volume is likely to remain limited Thursday as traders square end-of-year positions, although overall trader attendance remains limited given the upcoming holiday. Live cattle futures are expected to remain mixed in limited trade volume. The firming cash and boxed beef values seen midweek will spark underlying support, although the limited interest and previous market weakness has the potential to limit buyer interest as markets coast into 2021. Boxed beef prices firmed in both choice and select markets, although the limited gains in choice cuts was quickly overshadowed by aggressive triple-digit gains in select prices. Select beef cuts rallied $4.38 per cwt, quickly narrowing the market spread between the two segments. Although trade volume remains light, the overall tone of the beef market is firming going into the end of the year. This is creating hopes and limited expectations that additional support may develop early next week when active trade interest returns to the market.
Mixed trade in lean hog futures Wednesday continues to point to the ability for hog futures to trade near the top end of the trading range. The higher close in spot February lean hog futures is testing short-term resistance levels of $67.85 per cwt seen last week. A move above these price levels at the end of the year would place the market at six-week highs and help to solidify follow-through technical buyer support early next year. Limited interest and trade volume are expected Thursday with most traders likely to already have needed positions placed as they prepare for the long holiday weekend. Although markets will remain open the entire session, typically on New Year's Eve, it just as well could be an early close, or even a closed market day due to the limited activity and narrow market shifts seen on the last day of the year. Pork cutout values trickled higher Wednesday afternoon, posting a $0.29 cent per cwt gain. This underlying support in the market comes as pork values transition from holiday demand cuts, back to a more normal price relationship with pork cuts based on general consumer demand. Traders will also be closely focusing on the weekly Export Sales report Thursday morning, which will help to indicate activity, especially from China during Christmas week, and give a better indication as to buying interest through the end of the year. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents lower. Thursday slaughter numbers are expected near 395,000 head. Saturday runs are expected near 328,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Cash cattle prices were able to command moderate-to-firm price support despite the sharp pressure in futures trade during the week. Cash prices gained $1 to $4 per cwt depending on location, cut the focus on ending 2020 with increased prices brings a bright spot to a challenging year. | 1) | The continued aggressive gains in corn and grain markets is keeping cattle markets cautious. The higher feed prices will continue to have a major impact on feeder profitability and production levels through early 2021. |
| 2) | Moderate-to-strong gains in boxed beef values were symbolized by select cuts gaining $4.38 per cwt in midweek trade. The ability to continue beef market strength into the new year is likely to spark renewed support across the entire beef complex. | 2) | The ability to sustain current momentum in beef cutout markets and continue active beef movement following the holidays will be a significant factor in keeping cattle prices within the top end of the recent trading range. |
| 3) | Nearby lean hog futures continue to trade at or near short-term resistance levels, focusing on strong underlying support developing across the complex. | 3) | Pork cutout values continue to show late year support even though holiday pork buying has wrapped up. The uncertainty of how quickly pork product movements will be seen, could limit further gains during early January. |
| 4) | In the last weekly Export Sales report of the year, traders are looking for moderate-to-strong buyer support of pork from normal trade partners. The focus will be primarily on China's end-of-the-year interest in the market, potentially helping to springboard into a positive market move in early 2021. |
4) | Sharp cash hog losses developed Wednesday. The combination of large market-ready hog numbers available to packers and the upcoming holiday weekend with limited plant activity is likely to add to end of the year cash hog weakness. |
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