General Comments:
Cash cattle activity remains quiet early Wednesday morning following limited cash sales in the north Tuesday afternoon. With a few scattered deals reported at $110 live and $172 per cwt dressed, there definitely is not enough activity to develop a good market trend. That being said, trade would be considered steady to weak from last week's cash sales range and well under the weekly average. But it is important to not put too much emphasis on early trade as feeders remain aggressive in pricing cattle and are focusing on continuing the upward trend in cash values by the end of the week. Most trade is not expected until the last half of the week, with Thursday and Friday trade likely. This will be the true test in cash market direction as packers need larger cattle supplies but are showing no signs of panic at this point in order to fill procurement needs. Futures trade is expected steady to firm during early trade with live cattle futures holding well in the $112 to $113 per cwt price range in spot February contracts. Unlike feeder cattle futures, which have been gaining momentum and testing short-term resistance levels through the last week, live cattle trade remains well entrenched within a $5 per cwt sideways trading range. This is limiting the overall bullishness in live cattle trade during early December but is also creating a sense of market comfort and security by allowing renewed buyer support to slowly but steadily move into the market as prices inch higher. This is expected to create mixed price movements in the near future but will sustain the current market support in the complex.
Lean hog futures remain focused on recent market support as most contracts inched higher by the end of the session Tuesday. The pressure in December contracts was focused more on limited trade volume and lack of overall interest rather than a shift in market direction. Some concern may be seen following aggressive pork cutout losses Tuesday. Cutout values tumbled $3.01 per cwt on a carcass basis, with most of the pressure developing in ham and butt cuts. Wholesale ham prices fell $8.54 per cwt, while butt prices lost $3 per cwt. The concern that a portion of holiday wholesale buying may be nearing an end could be the causing the pressure in ham cuts during early December. These price levels will be watched closely over the next few days in order to determine if this trend continues. The CME pork cutout futures contracts continue to slowly gain market support, although at this point there is still just over 500 open interest contracts in the entire complex. This is not enough to become sustainable and overall market direction has so far closely followed the lean hog complex. It is uncertain if significant increased trade volume will move into the new complex over the upcoming weeks, or if this market will continue to exist with limited trade and open interest. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady 50 cents higher. Slaughter Wednesday is expected at 490,000 head. Saturday runs are expected at 302,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Firm continued gains in feeder cattle futures have moved prices to two-month highs, sparking further expectations of further growth over the upcoming days. |
1) | Light pressure in choice beef cuts early Tuesday sparked limited but growing concerns that beef values may have or be near the top of the recent market trend. This could create some potential market retractions in the complex. |
| 2) | Firm underlying beef demand support is growing, helping to focus on the need for packers to maintain current plant speeds. This is likely to keep cash markets firm to stronger in the coming weeks. |
2) | Steady-to-weak cash prices paid Tuesday, even though limited volume was seen, is viewed as disappointing as feeders were expecting to create early momentum in the market and build on the gains over the last couple weeks. |
| 3) | Lean hog futures have continued to trade at or near resistance levels, helping to instill further market interest from commercial and noncommercial traders during early December. |
3) | Sharp losses in pork cutout values will once again create uncertainty in the hog complex. The inability to maintain wholesale prices may add longer-term pressure to the complex, with the focus on aggressive losses in ham markets creating concern that seasonal buying may be prematurely wrapping up. |
| 4) | Cash hog values seem to have stabilized over the last week, creating hope and expectations that the next round of increased cash hog values is just around the corner. This is likely to firm price levels through the week as packers remain focused on active processing speeds and will need to gain additional access to market-ready hogs. |
4) | Support in nearby lean hog futures to aggressively move sharply higher seems to be waning over the last few trading sessions. This could put a market cap on the complex near $69 per cwt in February contracts, and create stable but stifled market support in the near future. |
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| #completeherdhealth |
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