General Comments:
Last week's cash cattle trade, which came in generally steady with the previous week, carried a general market disappointment to the complex. But the combination of aggressive Friday gains in futures trade and extremely disappointing gains in cattle placements in the afternoon Cattle on Feed report, is expected to create uncertainty through most of the morning. Cash cattle trade itself is expected to remain at a standstill through the next couple of days. Given that showlist distribution and inventory taking generally consume Monday's cash market activity anyway, the intense winter storm moving through a large portion of Northern cattle country will add even more delays to cash market developments this week. Feedlots will turn the focus to cleaning lots, and moving already scheduled cattle to plants if available, potentially pushing any focus on additional cash cattle trade toward the end of the week. Friday's Cattle on Feed report posted total on feed numbers at 100% year-ago levels. This is fractionally above the pre-report estimates of 99.3%. But the biggest surprise was seen in placement levels. Analysts expected a 3% drop in placement levels, although total placements in December increased 1% from 2019 levels. This is not only a significant shift from the average estimate, but it is outside of the estimated range, which was for steady-to-lower placements. This will likely get the attention of traders early Monday morning. Market uncertainty is expected to develop early Monday morning with additional limited trade likely early in the session. The overall lack of direction in the market given so much of the market volume is driven by computer trade, is creating significant concerns on the intensity levels and direction of the market through the first hour of trade Monday. Following significant market pressure in grain trade Friday, live cattle futures posted significant market support. This not only broke to new market highs but pushed March feeder cattle futures to limit gains Friday. The close at limit highs Friday enacted expanded trading limits in both live cattle and feeder cattle futures, with live cattle trade not able to stop trade until prices move $6 per cwt. Feeder cattle market stops are set at $7.50 per cwt for the Monday session. The increased placement levels in Friday's Cattle on Feed report is expected to carry a significantly bearish tone to the market, but at this point, no one knows if it is enough to significantly overshadow the change in feed prices that has created buyer support in the complex.
Late week, widespread support in the hog market continues to develop as traders focus on the aggressive pressure in feed prices and changes in overall production costs as corn and soybean meal prices are quickly adjusting lower. Triple-digit gains in all nearby lean hog trade has helped to instill longer-term market support, putting more attention on further technical support developing. February lean hog futures remain well below early January highs, although the focus in the complex has moved away from February contracts with April market moves being traded as the spot market. At this point, April futures have not yet set contract highs, but Friday's move has pushed prices well above last spring's market support and past pre-pandemic price levels. The ability to hold spring futures prices above $75 per cwt over the next couple of weeks is expected to instill additional buyer support in the complex. Continued support in all pork cuts Friday helped to further expand the pork cutout values at the end of the week. Unlike trade in recent days, Friday trade saw positive price moves in all cuts, bringing additional market support to the complex. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents higher. Monday slaughter numbers are expected near 492,000 head, but this is still uncertain based on weather conditions through the upper Midwest.
| BULL SIDE | BEAR SIDE | ||
| 1) | Aggressive reversals in grain trade Friday has quickly sparked underlying support in all cattle markets. The ability to adjust to the change in short- and long-term production costs could quickly stimulate active buyer support, which has been subdued for an extended period of time. |
1) | Cattle placement levels in December remained disappointing given following Friday's report. The increase in placements while most traders were looking for a firm decrease could quickly spark active market pressure Monday. |
| 2) | Expanded trading limits in live cattle and feeder cattle futures opens the door for even further market support Monday. Friday's gains have triggered further technical support possible, as traders focus on expanding trading ranges to long-term highs. | 2) | Despite the aggressive shift lower in grain prices, it is still essential to remember that corn prices remain well above average levels and will continue to cause significant long-term concerns to production costs for the near future. This could limit further price support in all cattle prices if grain markets do not continue to shift lower. |
| 3) | Strong underlying fundamental support continues to develop across the pork market with active gains developing in pork cutout values as traders focus on aggressively and actively moving current supplies, seemingly with no problem at all. |
3) | Winter weather conditions moving across the upper Midwest is expected to create significant disruptions in hog movements and plants abilities to keep up the aggressive procurement pace over the next couple of days. This could quickly shrink the overall slaughter levels for the week. |
| 4) | Active triple-digit gains in all nearby contracts has moved April futures to 16-month highs. This move not only sparked technical triggers through the entire complex, but for the first time in nearly a year, has moved past COVID-19 related losses seen last spring. |
4) | Cash hog values continue to significantly lag the moves in futures and pork cutout trade. This indicates that packers continue to remain content with the availability of market-ready hogs despite the upward tick in the market, further limiting cash market support. |
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