Wednesday Morning Livestock Market Update - Limited Interest Trickles into the Christmas Holiday

 General Comments:

As feeders quickly approach the Christmas holiday, cash cattle markets still remain relatively quiet going into Wednesday morning. The expectation continues that both sides would desire to wrap up trade sometime today, in order not to have to break away from Christmas preparations on Christmas Eve. But time is running out if all needed trade will develop through the day. The amount of cattle needed in the negotiated market is still uncertain as packers will run reduced schedules this week and next, limiting the immediate need for cattle. But the fact that full packer runs will develop the week of January 4th, should stimulate some additional holiday buying. Cattle are being priced at $110 and higher live and $172 and higher dressed, while packers continue to focus on the market leverage they have had (especially in the North) over the last few weeks with a desire to limit cash sales to steady at best. The underlying support in boxed beef trade during the week seems to be pointing to further resolve from the feedlot community, but it is uncertain if feeders will leave cattle unsold over Christmas if desired prices are unavailable.

Beef stocks in freezers increased in Tuesday's cold storage report, increasing 2% from October levels, and up 7% from year-ago levels. Beef cuts was the only beef category to see reduced stocks, falling 4% from last month, but cuts also posted the most aggressive gain compared to last year with a 15% gain. A total of 511.4 pounds are in the nations freezers at the end of November, further accenting the large cattle weights seen over the last couple of months able to put increased product into the system.

Boxed beef values were mixed to mostly higher with limited pressure in choice cuts offset by triple digit gains in the select market. This helped to solidify increased livestock equivalents, focusing on increased product value through the holiday week. The ability to sustain beef market growth through the holidays and end of the year is likely to add increased fundamental support into the complex heading into January and 2021.

Livestock trade remains vulnerable to very light holiday trade activity. As seen time and time again during these holiday weeks, fundamental and technical market factors can sometimes be thrown out the window, leaving increased price volatility. The very thinly traded markets leaves prices vulnerable to moderate to wide price swings, and many times it appears that lower market moves develop due to lack of sell-stops put in place. The triple-digit losses seen Tuesday in both live cattle and feeder cattle trade still kept prices well within the wide sideways trading range, but did create questions of further market pressure developing in the two sessions before the holiday break that remain this week. It is uncertain just how much pull steady to higher cash cattle trade will have to the futures complex this week, although traders are also preparing to move contracts into 2021, so it is unlikely that markets will break outside of technical support over the next few days.

Lean hog futures trade remains lightly traded during the first half of the week with narrow price moves likely early Wednesday morning. The complex remains focused on a "report-heavy" day as at the time markets open, traders will have both cold storage report data and weekly export sales data to trade, with the focus on the afternoon quarterly hogs and pigs report released after markets close. This could create moderate price shifts through the morning, although widespread price swings are not likely to develop at this point.

Pork supplies decreased, with total pork in storage falling 7% from last month, and down 28% from year-ago levels. The continued strong export movements through the year combined with increased strength in domestic markets continues to keep clearing active product, although the lower price levels seen over the past few months is helping to stimulate additional widespread movement. Pork bellies created the biggest volatility and potentially concern, with inventories increasing 21% from October levels, but falling 58% from last year.

Traders will focus on the morning export sales report Wednesday morning due to government offices being closed Thursday for Christmas Eve. Active movements to China will be the main focus once again. Traders are also looking forward to the quarterly hogs and pigs report. It appears that most estimates are looking for a 1-3% decrease in overall hog supplies on December 1st, with most averages settling on a 1% drop. Reductions in further farrowing intentions are also expected, which should help to contract the hog industry through the summer of 2021.

Sharp losses in pork cutout values was led by aggressive losses in ham and belly cuts. The overall pressure focused on holiday buying wrapping up, at least from a wholesale side of the equation, which could leave pork values unsupported over the near future.

Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents lower. Wednesday slaughter numbers are expected near 482,000 head. Saturday runs are expected at 60,000 head.

	BULL SIDE		BEAR SIDE
1)	Continued firmness in boxed beef values points to increased underlying support developing through the holiday season.	1)	Limited early-week movement in cash cattle trade adds concerns about the ability for feeders to push prices higher before the Christmas break.
2)	Continued active packer interest through the holidays and well into 2021 should help to continue to clear market ready cattle, potentially limiting overall carcass weights over the coming weeks.	2)	Triple-digit losses in live cattle and feeder cattle futures Tuesday signifies the impact of limited trade volume in the market, and how markets can remain extremely vulnerable to wide market swings despite no change in fundamentals.
3)	Significant reductions in pork cuts at the end of November points to continued tightness in pork supplies, and should help to stimulate limited but continued buying in the coming weeks.	3)	Pork exports are expected to remain strong through the end of the year, but limited movement in the Wednesday report could spark underlying price pressure in nearby futures contracts.
4)	Hog inventory levels are expected to see light to moderate reductions in Wednesday's quarterly hogs and pigs report. The trend of reducing hog supplies seen over the past two quarters is expected to continue, focusing on tighter supply levels during the second half of 2021.	4)	Sharp losses in pork cutout prices was led by active pressure in ham and belly cuts. This is likely to cause market pressure through the rest of the week based on pork cutout values falling over $4 per cwt in one day.