Thursday Morning Livestock Market Update - Cattle Futures Slowly Regaining Composure

General Comments:

Cash cattle trade became more evident Wednesday, likely setting the tone for the week given the early week pressure and concern of follow-through weakness in the complex. It has become evident that packers are intent on reducing spending on cattle purchases through the week, leaving feeders feeling pressured to try to step into the market and sell cattle in the event prices will be lower the next day. Light-to-moderate trade developed in the South with live cattle trading in a wide, but lower range of $108 to $111 per cwt. Most trade took place at $110 to $111 per cwt, which is $1 to $2 per cwt lower than last week, and swiftly ends hopes of renewing the positive moves in late December. Dressed business in the North remained generally light, but developed mostly $172 to $173 per cwt. This is $4 per cwt below last week's levels, but generally steady to $1 per cwt below the limited Tuesday trade reported. The amount of trade in the market is expected to have generally set the tone for the market, but at least some additional trade volume is expected in the next couple of days. Both feeders and packers appear more focused on long-term market direction with the intent of bringing stability to the market next week, helping to limit the January pressure to losses already seen.

Market stability slowly but firmly developed in feeder cattle and deferred live cattle futures through the second half of trade Wednesday. Although traders continue to focus on recent gains in feed prices from higher corn and soybean meal price levels, feeder cattle futures especially appear to have hit support levels, creating renewed underlying buyer support at these price levels. The trigger point that traders aggressively defended through the midweek session was $133 per cwt in January futures and $134 per cwt in March contracts. At this point, buyers are willing to move into the complex, sparking renewed support in nearby and deferred contracts, also helping to lend price support to the live cattle futures. Although light pressure may continue to develop in nearby live cattle futures as the increased production costs continue to add uncertainty to short-term market production, summer contracts have found moderate support near the $115 per cwt price points, sparking renewed interest likely through the end of the week.

Boxed beef prices posted moderate-to-firm support Wednesday with increased values in choice and select cuts. The $1.86 per cwt gain in choice cuts not only sparked renewed momentum through the market but also helped to widen the choice to select price spread. Traditionally, the first quarter is challenging as it tries to maintain strong premium levels in choice beef values. This leaves seasonal lows in the market spread typical between early January and March. But the ability to sustain moderate-to-strong buyer interest in these higher end cuts could minimize the pressure over the next few weeks.

Strong hog market pressure continues to be rooted in spot-month February contracts with traders focusing on the lack of support in nearby contracts given the previous weakness in other contracts across the livestock market. Despite the pressure in nearby lean hog futures, the focus on light but consistent buying interest moving back into deferred contracts is helping to take the pressure off the weakness in February and April futures. Traders continue to focus on the direction in wholesale pork values, and the lack of follow-through buyer support over the last couple of days is adding to market weakness. Given the inability to hold recent gains, spot-month contracts are nearing initial support levels of $66.50 per cwt, Thursday morning will be a good test to these support levels, and could help set the market direction and trade interest for the next couple of weeks.

Wide price variability has developed in pork cutout values over the last few days, creating instability in the entire market and causing a pendulum effect in carcass values. Pork belly prices tumbled lower, falling $15.24 per cwt in afternoon reports Wednesday. Ham and picnic values, which tumbled lower Tuesday, posted aggressive market rebounds on Wednesday, further adding to pork price volatility. Part of this is seasonal buying patterns still shifting, but there could be some additional uneasiness growing based on whether current demand levels can be sustained over the next couple of months. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents lower. Thursday slaughter numbers are expected near 495,000 head. Saturday runs are expected at 256,000 head.

	BULL SIDE		BEAR SIDE
1)	Firm buyer support is slowly moving back into feeder cattle futures as traders appear to have reached support levels despite continued uncertainty in feed prices and production costs. This could rekindle commercial buyer support through the end of the week.	1)	Active pressure in cash cattle trade over the last two days has quickly taken the wind out of the sails. The hope that feeders could demand steady-to-higher price levels despite the pullback in futures trade is being dashed and causing concerns of further pressure in the weeks to come.
2)	Firm support in boxed beef values continues to develop through the week. The ability to move large amounts of beef through the system is putting the focus on tighter supplies as 2021 progresses.	2)	Elevated feed prices will continue to be a major concern for the cattle market industry through most of the year. Not only are grain prices at the highest levels in nearly seven years, but high-priced hay and forage products impacts all areas of cattle production.
3)	Active price gains moved back into ham and picnic cuts, helping to bring renewed stability to the pork cutout values. This focus may continue to spark increased, but slow pork buyer support in the coming days.	3)	Pork belly prices tumbled lower Wednesday, falling $15.24 per cwt as prices are readjusting in the complex. A portion of the market shift may be associated with potential long-term impacts on bacon demand from the struggling food service industry during the next several months.
4)	Deferred lean hog futures trade continues to make strides on higher and more supportive price levels as traders factor in the increased cost of production into the market and focus on maintaining strong demand through the remainder of the year.	4)	Cash hog prices continue to erode lower during early January. This has moved prices below $55 per cwt, creating concerns that further winter market pressure will further weaken the entire market.