General Comments:
Following light-to-moderate trade Tuesday and Wednesday, cash market activity appears to be essentially done for the week with a few clean-up deals reported Thursday, and the potential for a few additional trades trickling into the market Friday. Unless a major shakeup is seen in outside markets or live cattle futures, cash market trade is expected to coast into the long weekend with limited interest and hold the weaker tone, which has developed over the past few days. Asking prices on cattle that remain on showlists is at $110 to $111 live basis, and $175 per cwt dressed, but the tone of the market appears to be generally $2 to $4 per cwt lower than last week, although generally steady with early week trade. Active selling this week in live cattle and feeder cattle futures has started testing initial support levels in nearby contracts. This is leaving traders focused on long-term market direction and the potential that widespread liquidation in nearby contracts could start to develop through the next several trading sessions. February live cattle futures were unable to hold early January support levels at $112.30 per cwt, with spot-month contracts closing below this level at $112.07 per cwt. The moves early Friday morning may be telling as to whether cattle markets can defend current price levels, or what longer-term direction may be seen over the coming days. Feeder cattle futures are also showing further signs of market erosion as nearby contracts are testing lower market limits with January feeder cattle contracts trading at the lowest levels since October. There is a wide gap between current price levels at $132.60 per cwt and October lows of $125.22 per cwt, but each tick lower erodes market support through not only the feeder cattle market, but all cattle trade. Boxed beef prices Thursday became the one bright spot of the cattle market with firm triple-digit gains seen in choice and select cuts. The upward market shift in the complex continues to focus on the ability for packers to move beef product following the holiday season and sustained longer-term demand. But the continued separation between cash cattle trade and beef values is adding increased uncertainty about continued market support in the last half of January.
Active pressure once again developed in nearby lean hog futures trade. February lean hog futures posted limited pressure compared to the rest of the complex, but the sharp market weakness the past two weeks has caused traders to focus on further market liquidation. February futures have tumbled $5 per cwt since 2021 began, an indication that the new year will likely be no different from last year. The underlying support in deferred contracts is starting to fade despite firm gains in pork values at the end of the week. Although further pressure in summer and fall contracts is expected to remain limited, buyers need to be able to find confidence for short-term market support in order to actively step back into the complex in the next few days. Market volatility in pork cuts through the week has continued to be the story in overall pork prices, leaving markets generally uncertain as to where to move in the coming days. Pork belly prices, which tumbled lower Wednesday, rebounded aggressively, posting a one-day $16.12 per cwt gain in Thursday afternoon's report. The limited overall movement in select cuts each day is also adding to the market swings, creating limited uncertainty if these price gains can be trusted as a good indication of market health. Further market swings are likely through the end of the week, although it is uncertain how this will impact futures or cash trade in the coming days. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents lower. Friday slaughter numbers are expected near 494,000 head. Saturday runs are expected at 256,000 head. Next Monday's holiday schedules are expected to be near 441,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Active gains have developed in boxed beef markets, with triple-digit support Thursday afternoon expected to create some end-of-the-week fundamental market support in the cattle complex. | 1) | Live cattle futures broke through initial support levels of $112.30 per cwt in February futures Thursday. This is creating additional downward market gaps, which could cause further late week pressure in all cattle markets. |
| 2) | Limited grain market support during overnight trade is starting to bring questions if the corn market is at or near its market top. A strong pullback in corn prices over the next several days is expected to be viewed generally bullish for live cattle and feeder cattle markets during the last half of January. | 2) | Cash cattle prices continue to show market weakness as packers quickly backed away from the market this week. It is uncertain with the lack of futures market support and changes in available cattle numbers if feeders will be able to reverse the weaker trend next week. |
| 3) | Strong late year pork demand remains evident in futures trade with summer and early fall contracts commanding strong, double-digit premiums to spot market prices. The ability to sustain long-term buyer support is expected to sustain further market interest through the second half of 2021. | 3) | Cash hog prices continue to show additional market weakness in late week trade. This underlying pressure in the market is wearing on fundamental support, which was thought to be strengthening during early January due to expected strong product movement. |
| 4) | Pork cutout values surged higher following a $16 per cwt rally in pork belly prices. This wide-ranging and volatile market shift in pork cuts over the last week is helping to create expectations of further buyer support in the near future. | 4) | Active pressure in all lean hog futures trade has triggered limited but evident technical selling in nearby futures. The move to 2021 lows in February futures Thursday afternoon is creating uncertainty through the entire complex ahead of the long weekend. |
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