General Comments:
Cash cattle trade developed in most areas Wednesday with prices generally $108 to $110 per cwt. Most trade was at $110 live basis in the South and $109 per cwt live basis in the North. This is generally steady with last week's cash cattle trade and is seen as disappointing as the market was looking and hoping for a light-to-moderate bounce higher through the week. Additional trade is needed in all areas, but for the most part, it is expected that packers will be consistent in bids at around $109 per cwt through the end of the week. Feeders remain in a tough spot at this point. Although steady money and prices at $110 per cwt are far from ideal, the cost associated with holding these cattle an extra week or more while feeding $5 per bushel corn, is quickly adding to production costs. At this point, with the higher grain prices and steady cash market feeders are looking at reducing risk as much as possible, likely allowing for steady money to hold through the end of the week. Feeder cattle futures, which continued to regain composure following firm buyer support and a pullback in corn prices early in the week, may be at a crossroads through the last half of the week. Corn prices have rallied higher once again in overnight trade, pointing to a higher open Thursday. This could quickly dispel a portion of the market momentum seen over the last couple of days, but it may also be driven by the expectations that cattle placements in December are expected to dip 3% from year-ago levels. It is important to remember that thanks to the two-day market support in feeder cattle futures, feeder cattle contracts have rallied nearly $3 per cwt from last week's lows. The ability to sustain this underlying support over the next couple of weeks despite the higher feed prices could create further long-term support in the complex. Live cattle futures remain within striking distance of setting new highs for the market cycle, but the continued softness in cash trade and volatility in grain and feed markets appear to be limiting aggressive buyer support at this moment. The continued support in beef values is helping to offset any bearish momentum, but it is uncertain if this is enough to spark aggressive buying interest through the end of the week. Boxed beef prices continue to gain light but supportive momentum as choice cuts led the market higher Wednesday. The underlying support in boxed beef values appears to be offsetting strong market fears of further pressure in overall demand. Uncertainty and hesitation remains in the market over what President Biden's plan will be when it comes to combatting COVID-19. The concern of further shutdowns has long been held and could impact both production of beef and overall consumer demand. But so far, little confirmation that widespread shutdowns are on the agenda, which could help to stimulate additional beef movement if this plan continues.
Active buyer support quickly moved back into the lean hog futures complex with traders focusing on increased underlying support. Triple-digit gains held in all nearby and most deferred contracts as spot February futures led the complex higher with a $1.95 per cwt rally. This move higher has quickly moved through last week's market highs, creating underlying support in the complex. The ability to string together two or three positive chart days through the end of the week will go a long way in drawing increased buyer support back to the complex. Strong midweek gains in ham and picnic cuts sparked underlying support moving back into the entire pork cutout value. Ham cuts rallied $5.39 per cwt while picnic cuts surged $6.96 per cwt helped to support a $1.60 per cwt gain in the entire cutout value. Firm underlying support in cash hog values also developed, as packers seem to be finding tighter-than-expected supplies as January continues, leading to increased spending to fuel aggressive plant outputs during the week. Without any unforeseen weather delays, plants have nearly a month before any expected production cutbacks are likely due to holidays. This could continue to spark firming cash market support over the upcoming days and weeks. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents higher. Thursday slaughter numbers are expected near 498,000 head. Saturday runs are expected at 320,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Sharp follow-through gains quickly developed in all feeder cattle trade midweek. This continues to spark renewed underlying support in the complex despite currently elevated feed prices. | 1) | Live cattle futures have struggled to regain firm buyer support despite the rally in feeder cattle trade. This may limit further support over the near future. |
| 2) | Strong support is seen in deferred feeder cattle trade, with fall contracts moving above $150 per cwt over the last two days. This is not only creating hope for further market gains but allowing pricing opportunities for fall calf sales. | 2) | Cash cattle trade appears to be generally stable with last week's prices. This is creating disappointment through in the market. |
| 3) | Active gains in all lean hog futures Wednesday has created renewed optimism in the lean hog complex. The potential to add to current gains could spark renewed interest over the next couple of weeks. |
3) | Volatility in lean hog futures continues to limit widespread buyer support as prices seem to be chopping around within a wide market range, but unable to aggressively break out of this range. |
| 4) | Sharp triple-digit gains in ham and picnic cuts Wednesday is helping to stimulate expectations of further demand support through the first quarter of the year. |
4) | Additional focus on talk that China pork production continues to rebound has not yet been validated by cash hog prices in the country. But significant gains in production will likely mean pressure in current lean hog values in the coming months. |
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