General Comments:
Recent pressure in live cattle trade and boxed beef values has made a significant impact on the cash cattle trade. Although only light trade trickled into the market Tuesday afternoon, there appears to be enough activity in the South to set the tone of lower prices for the week. Live trade developed around $108 per cwt Tuesday which is $2 to $2.50 per cwt lower than last week's price levels. A few trades were reported in the North on a dressed basis with prices from $168 to $170 per cwt. Although this business is not enough to establish a market trend for the week, prices are still $2 to $4 per cwt lower than last week's levels. There will still need to be much more activity in all areas in order to get a good handle on cash cattle market prices, but the weaker market tone remains evident, and will take a significant surge in futures trade and beef values in order to reverse this trend. The firm pressure in futures prices early in the week is finally seeing market resistance, which is expected to draw limited buyer support back into the market. Actively traded February contracts are nearing November lows of 110.52 per cwt. The ability to hold this support level will be essential to keep prices above $110 per cwt through the end of the year. A move below this support level will leave the door wide open to sweep significantly lower with the next major support level at $106.40 per cwt in February futures. A move below the $110.52 levels would move the live cattle complex outside of the sideways market trend that has contained the market over the last six weeks. Traders also remain concerned about the significant and rapid losses in boxed beef values during the week. Both choice and select cuts have posted double-digit losses within the last two days, creating additional downward market momentum and uncertainty in the complex.
Lean hog futures bounced higher late Tuesday, helping to create a much needed spark through the livestock complex. The underlying support in the market may continue if wholesale pork price support is regained over the coming days, which will instill renewed technical support in all nearby contracts. Although December futures have dipped below the $65 per cwt price point, the ability to hold above $65 per cwt will be considered a significant success through the rest of the week in February contracts. Limited but mixed price moves are likely to develop early Wednesday morning, although traders appear to be focusing on light buyer interest attempting to redevelop traction through the end of the week.
| BULL SIDE | BEAR SIDE | ||
| 1) | Firm gains in feeder cattle futures Tuesday afternoon may be the positive change that the livestock market has been looking for over the last two weeks. | 1) | Sharp losses in boxed beef trade developed for the second straight day. This quickly created the expectation that the incredible upward market run has ended, leaving traders focusing on further developing pressure in the coming days. |
| 2) | Nearby live cattle futures have been able to adamantly defend price support levels of $110.52 per cwt in February contracts. The ability to hold this line in the sand through the rest of the week is likely to spark renewed commercial buyer support in live cattle contracts, maintaining the wide but supportive sideways market trend from the last several weeks. | 2) | Cash cattle trade is starting to weaken, with feeders giving way to lower bids earlier in the week than expected. The combined futures and boxed beef market pressure is pointing to more potential weakness through the holiday seasons. |
| 3) | Firm underlying buyer support redeveloped in lean hog futures trade Tuesday afternoon. This change in direction may be the spark to renew active buyer interest in the complex. | 3) | Packers have been challenged with maintaining expected hog processing speeds with revisions needed in two of the last three days based on the inability for packers to meet expected limits. This is expected to continue to be an issue as packers run at "breakneck" speeds in order to keep up with the current supply of market-ready hogs. |
| 4) | The ability to clear the enormous amounts of market-ready pork in domestic and export markets seen over the last several months should not be overlooked or taken lightly. Even with food service market challenges, the ability to sustain pork demand has been incredible through the year. | 4) | Volatility in pork cutout prices continues to be a major issue, limiting much needed market stability heading into the Christmas season. As consumer buying wraps up for holiday needs over the next couple of weeks, even more price shifts are likely in major pork cuts, sparking further movement in the overall cutout values. This severely limits market stability in all pork market sectors. |
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