General Comments:
Cash cattle trade remains inactive with bids and asking prices not likely until near midweek. Although some light interest may trickle into the market Tuesday, both sides seem to be in little hurry to press the issue of cash cattle trade with Monday's weakness in live cattle futures, creating some uncertainty as to the short-term direction of the market. Last week's 5-Area weekly average price moved to $110.27 per cwt. This is a 70-cent gain from the previous week, and as expected, continues the slow but steady upward shift higher in cash cattle prices. But given the fact that most cash cattle sales were reported $1 to $2 per cwt higher, depending on the region reported, these final prices are slightly disappointing. With the Thanksgiving holiday in the rearview mirror, and three weeks of "normal" plant production before another holiday slowdown is expected, the potential to add renewed support to the cash cattle market is likely. Both cash cattle and futures trade is focused on the underlying support in boxed beef values, which have rallied nearly $40 per cwt in choice cuts during the current rally. Until buyer support cools in the boxed beef market, the expectation is that moderate support will continue to trickle into the remainder of the cattle complex. Feeder cattle futures led the way higher Monday with triple-digit gains in January futures taking advantage of the pullback in grain prices. The early week rally helped to break through resistance levels, sparking technical support going into the month of December. Live cattle futures continue to be more subdued with prices stuck within a wide sideways trading range, limiting expected technical signals over the near future, although traders are expected to become more focused on fundamental support through the end of the week.
Active follow-through gains developed Monday in nearby lean hog futures, helping to set the overall tone for further market support across the entire complex. December and January futures broke through resistance levels set in early November, setting November highs just before the end of the month. This recent move higher combined with the essentially unchecked rally off market lows is helping to build even more trade momentum through the entire complex. Traders are looking for additional longer-term support from pork cutout values, which have been slightly supportive, but unable to remain consistently higher over the last several weeks. Traders are also focusing on the potential that long-term demand growth may start to redevelop with increased talk and hopes that vaccine rollouts over the upcoming weeks will start having an impact in the amount of COVID-19 cases, and return to a more normal demand structure for the pork industry. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady 50 cents higher. Slaughter Tuesday is expected at 491,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Beef values continue to steadily and firmly shift higher. The gains Monday in choice and select cuts offset uncertainty after late week pressure in the market surrounding the holiday. Continued strength in beef values will be the main driver in further active buyer support in the cattle complex. | 1) | Gains in cash cattle markets have not kept up with the aggressive and active upward shift in beef values. This is leaving the cash market undervalued, but current packer interest seems hesitant and reluctant to narrow the price gap at this point. This could quickly stall the upward market support in the cattle complex. |
| 2) | Strong shifts higher in nearby feeder cattle trade Monday sparked technical support across the complex. With January futures trading at two-month highs, the potential for additional market gains is developing during early December. | 2) | Wide price swings in grain and feed markets will continue to be a major concern through the end of the year and well into 2021. The tighter supply of grain available for feed will have significant implications on cattle margins. |
| 3) | Pork values have started to shift higher during early week activity, putting the focus on further likely gains developing as trades continue to look for short- and long-term demand strength in the upcoming days and weeks. | 3) | Despite strong short-term gains in lean hog futures over the last week, the lack of continued strength in summer and fall 2021 lean hog futures is starting to raise questions about long-term market strength. Summer premiums have narrowed to $13 per cwt above spot month contract prices, seemingly capping summer price levels at $81 per cwt at this point. |
| 4) | The upward shift in lean hog futures over the last two weeks has sparked additional technical buyer support through the entire complex. The move from fall lows to month-long highs in two weeks is sparking widespread buyer support through the entire complex. | 4) | Despite the strong upward shift in futures trade, gains in cash hog and pork cutout values have been more resistant. This is creating some concern that fundamental strength in the market may not be as deep as some believe. This could limit further market support. |
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| #completecalfcare |
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