General Comments:
Cash cattle activity remains quiet as the sharp turn lower in futures trade seems to have had little immediate impact in the price potential in the cash market. But the higher feed prices and continued weakness in futures trade could have longer lasting implications in the ability for feeders to command the higher prices they are looking for during the holiday week. Bids are hard to pin down in the North, while Southern live cattle bids remain at $112 and higher. The expectation that packers will be aggressive buyers in order to fill plant needs for the first two weeks of January is causing the bullish undertone by feeders. The question of just how many negotiated cattle will be needed during early January still is not being answered with contracted cattle able to be utilized to curb overall needed cattle bought out of the cash cattle market. Even with the sharp shift lower in cattle futures Tuesday, the focus across the market is being placed on end-of-year needs with boxed beef prices stabilizing and expected to gain light-to-moderate momentum over the next couple of weeks. Cash trade is likely to become more active Wednesday. Although both sides desire to wrap things up before New Year's Eve, there is not nearly the same intensity of finishing Wednesday as seen last week. This could allow some trade to trickle into Thursday afternoon, but depending also on the direction of futures trade over the next couple of days.
As it has been said time and time again over the last couple of weeks, limited volume during holiday weeks can and most likely do create significant disruptions to the market. This continues to be the case as limited trade volume is seen in all markets, creating uncharacteristic market moves as prices break away from technical or fundamental market indicators, and few traders in the complex can have a significant impact on market prices and price direction. This continues to be the case time and time again during major holiday weeks, and Tuesday's cattle and grain market shifts evidenced this. The main focus in cattle trade Tuesday was placed on the surge in grain prices, with nearby corn prices rallying nearly 10 cents per bushel, and soybean markets posted gains of 38 cents per bushel. This increased cost of production quickly and aggressively impacted feeder cattle futures, and swiftly moved through the live cattle complex. The underlying pressure is showing the most impact in nearby live cattle futures. Even though grain markets appear to be giving some of the early week gains back Wednesday morning, the damage seems to be done in the livestock market for now. With limited trade volume over the next couple of days, prices could remain volatile, but the pattern of these moves is still uncertain as markets are not reacting in a rational manner due to limited trade and wild outside market shifts. Boxed beef prices remained mixed Tuesday, but the underlying support in choice markets seem to indicate further buyer support across the complex. This is likely to limit longer-term concerns surrounding beef price stability, although growing questions remain about just how aggressive demand support will develop in early January with concerns about food service demand through the upcoming weeks after the holiday has passed.
Strong underlying support continues to move into nearby lean hog futures as the market seemed to be less impacted by the grain market as cattle futures were. Although when it comes to production cost shifts, the impact of soybean market gains on the hog market has just as much or more feed market impact than the corn complex, although both are very significant. The expectation of firming demand support in domestic and export markets over the coming weeks is helping to drive additional buyer support into the market, as prices are still hovering in the top one-third of short-term trading ranges as prices continue to remain comfortable between the $67 and $72 per cwt price ranges. Limited but positive support in pork cutout values has led to increased underlying support. As wholesale buyers and retailers move away from the holiday demand products, and back into typical pork mainstays like ribs, loins and belly cuts, the focus is on building significant retail support around these products as consumers move back to a more normal pattern of shopping and cooking after the holidays. There is also the expectation that moderate-to-strong export demand will redevelop over the next couple of weeks, bolstering overall pork demand and price levels. 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 488,000 head. Saturday runs are expected near 328,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Cash market optimism remains strong in cattle markets following the Christmas week gains and need for packers to gain access to additional cattle through early January. This is creating significantly higher asking prices with feeders not likely to settle for steady money going into 2021. | 1) | Sharp gains in corn and soybean markets quickly disrupted the positive movement in cattle trade Tuesday. Feeder cattle futures carried the brunt of the higher feed costs, but this price pressure was quickly passed on through live cattle futures. Higher feed prices through the upcoming year is likely to be a major concern in cattle market profitability and likely to limit price support. |
| 2) | Despite the price pressure Tuesday, nearby live cattle futures continue near long-term highs, with the potential to move above these resistance levels likely sparking underlying technical buyer support. |
2) | Continued pressure in food service demand is likely to remain a major issue during early 2021. With holiday activities wrapping up, the concern of consumers cutting back on spending and dietary changes due to New Year's resolutions, typically has an impact on consumer spending and will likely impact beef demand also. |
| 3) | Lean hog futures posted strong late day support despite the aggressive gains in grain markets, which disrupted positive movement in the cattle complex. Although hog markets remain heavily impacted by feed prices also, the increases have been able to be worked through nearby lean hog prices. | 3) | Uncertainty of movement of pork in export markets during the Christmas week may add late week concern to the complex as traders look forward to the weekly Export Sales report Thursday morning. |
| 4) | Firm underlying support is starting to redevelop in pork cutout values. The focus on increased buyer support and strong consumer demand through the holiday season is pointing to further upward movement during early January. | 4) | Limited trade volume during the holiday week may quickly disrupt the firm buyer support in the complex over the last two days. With markets closed Friday, trade is expected to remain sluggish, leaving prices vulnerable to wide market swings, which are not supported by fundamental or technical market factors. |
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