General Comments:
Cash cattle trade during the New Year's holiday week is always interesting. Although, like Christmas week, it is a holiday-shortened week, with packers and feeders trying to cram a full week of activity into three or four days. But unlike Christmas week, the need for packers to secure needed procurement numbers for active and full week runs over the next two to three weeks will cause both sides to become more active and make the most of the shortened timeline this week. The momentum that cash cattle markets have going into the week should help to command higher price levels, but the biggest question now is just how much higher prices. Renewed support continues following cash cattle prices that jumped an average of $3 per cwt last week, while continued futures market support is developing through the end of the year. Cattle are starting to be priced higher with $180 per cwt asking prices seen in the North, although asking prices in the South are still hard to pin down. Even though packer interest may become slightly more aggressive during the day Tuesday, it is likely that trade will be delayed until Wednesday or Thursday. Live cattle futures continue to gain strong late year support with nearby contracts moving to six-week highs through the end of the session Monday. The ability for February live cattle futures to post moderate-to-strong gains in the closing hours of 2020 indicates the growing underlying support developing across the complex. But even though prices have shown potential of new life and longer-term strength, the ability to test resistance levels above $16 per cwt will be important in continuing the market support. A move above $16.25 in February futures would technically break above the sideways market range that has confined the entire cattle complex through the fall months. With renewed support developing in cash cattle and boxed beef markets, this week appears to be the best opportunity to break out of the previous pattern. A technical shift higher at the end of the year could create significant momentum during the month of January, helping to break away from the previous pattern, which has restricted market growth. Boxed beef values remained mixed Monday, although the underlying firming tone is expected to continue with the market appearing to have stabilized over the last week. The potential for light-to-moderate gains at the end of the month would help to confirm further support, although trade volume is likely to remain light in the last few days of 2020.
Lean hog futures continue to hover in a narrow-to-moderate trading range near the top end of short-term market ranges. The price pressure on Monday is not technically significant as traders expect trade to remain subdued through the end of the month. The ability to keep February futures above $66 per cwt, and April futures over $70 per cwt is likely to spark renewed longer-term support as traders focus on increased pork demand even after the holiday buying wraps up. Increased underlying activity is likely over the next couple of sessions, although outside market moves will play a significant role in the movement and direction of hog trade during the week. Pork cutout values surged higher, creating additional fundamental market support through the complex. Pork values are likely to remain volatile in the next few days, as swift price shifts in individual pork cuts will continue to have a significant impact in directing the overall pork value. Wide wholesale market swings are typically seen during the holiday weeks with buyers wrapping up holiday needs but making longer-term purchases for needs of product for the coming weeks and months. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents lower. Tuesday slaughter numbers are expected near 488,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Cash market optimism remains strong in cattle markets following the Christmas week gains and underlying support in futures trade Monday. This is creating significantly higher asking prices with feeders not likely to settle for steady money going into 2021. | 1) | Winter storms moving through much of the northern cattle country will significantly impact feedlots over the near future. Although this may not be a large enough event to spark aggressive futures market strength, it will significantly impact daily gains and production costs over the next few days, at least. |
| 2) | February live cattle futures are testing long-term support at $16.25 per cwt. A move above these levels through the week is likely to spark renewed technical buying and set the tone for renewed market movement through the month of January. | 2) | Despite the strong developing support in cash and futures trade, boxed beef values have had a hard time showing renewed market strength and are continuing to hold near recent market lows. Without firmer boxed beef values in the next two weeks, cash market optimism will derail. |
| 3) | Pork cutout values surged higher Monday, sparked by $5 to $6 per cwt gains in loin and belly markets. With holiday buying wrapping up, the focus moves away from ham cuts and to the importance of belly, rib and loin market support moving into the new year. | 3) | Cash hog values continue to struggle to regain market support as reduced packer schedules are leaving plenty of market-ready hogs available in the country. This could continue to limit cash hog market prices well into January. |
| 4) | Traders will continue to focus on the ability to move larger amounts of pork product in domestic markets through the end of the year. But renewed interest in export trade to China will continue to be needed to maintain the price strength seen through the complex. | 4) | Lean hog futures have been unable to hold last week's highs, creating growing concern that follow-through weakness may develop during the lightly traded holiday week. The lack of volume in the market may also create unneeded wide price swings, which could have a significant impact on market direction at the end of the year. |
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