Thursday Morning Livestock Market Update - Cautious Cattle Traders Focus on Firming Cash Cattle Markets

General Comments:

It appears that this is the week to start a cash cattle market rally as feeders continue to aggressively price cattle in order to take advantage of the widespread support seen in futures and boxed beef values over the last couple of weeks. Although the majority of cash cattle still needs to trade in the next two days, the ability to spark limited cash trade in the South at $112 to $113 per cwt is helping to create renewed optimism in the entire complex. Asking prices on cattle remain at $115 and higher in the South and $182 to $184 live basis in the North with the expectation that packer bids will continue to improve through the next day or so. A $3 to $4 per cwt weekly rally in cash values from last week's average is not out of the question, but the higher prices may bring wider trading ranges over the upcoming weeks, which may become more difficult to determine short-term market support. So far, continued strength is seen in boxed beef values, but the inability to hold these gains through early February could quickly cool the optimism in the cattle complex. Moderate midweek pressure developed across all cattle trade Wednesday with feeder cattle futures holding the brunt of market losses. The focus in the feeder cattle market is moving back to the renewed buyer interest developing in corn prices and overall feed costs. The aggressive gains last week across the complex was sparked by aggressive price pressure in corn trade. But given renewed active buying in the corn market by noncommercial traders and a large export sale to China early in the week, corn prices are once again testing market highs. This will continue to put increased pressure on feeder cattle prices based on higher feed and production costs. Technical and fundamental factors still remain bullish in live cattle futures, but traders have started to slowly back away from the market on a short-term basis, as the recent price softness is expected to be driven by position taking, rather than any significant change in market direction. With strong beef demand growth still expected to develop through the upcoming months, the momentum to hold live cattle above the $120 per cwt is likely to continue to build.

Lean hog futures have started to see moderate position adjustments, although the tone of the market remains strong. Traders will continue to focus on the ability to move active pork supplies in domestic and export markets through the next couple of months, although current hog production seems to have stabilized for the time being. Average carcass weights have started to tumble over the last week, falling nearly 5 pounds over the last couple of days. This is starting to show the impact of higher feed prices as producers and packers will continue to move hogs through the system faster. This not only creates less overall pork available to the market, but also helps to increase overall turnaround time in barns through the upcoming months. Overall pork cutout prices continue to shift slightly higher based on firming underlying support in pork prices. But price volatility in individual pork cuts remains high with prices bouncing higher and lower in wide ranges. Ham cuts on Wednesday gained nearly $8 per cwt, offsetting the $7 per cwt losses the day before. With each cut moving in a wild range, it is hard to find overall market consistency in this current environment. Although prices have done well given the wild and erratic market shifts, the lack of consistency and confidence on end user buying will continue to limit further market support. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to higher. Thursday slaughter numbers are expected near 494,000 head. Saturday runs are expected at 248,000 head.

	BULL SIDE		BEAR SIDE
1)	Cash cattle trade appears to be breaking higher with early indications of $3 to $4 per cwt gains from last week's averages starting to build further optimism in the cash cattle market. Although most cash cattle trade still needs to develop, the ability to build on this momentum is likely to create longer-term positive shifts in the complex.	1)	Corn values have regained most of last week's losses as aggressive China corn purchases sparked an early week rally. This is moving prices back near market highs, which is weighing heavily on feeder cattle prices as the week continues.
2)	Following the strong market shift higher in the last two weeks, nearby live cattle futures have expanded the chart gap above the 40- and 100-day moving averages. This chart signal continues to spark a combination of commercial and noncommercial support through late January.	2)	Despite the continued strong support in boxed beef prices, the trend of rising beef stocks in cold storage should not be overlooked. A continued trend of rising beef inventory levels could create further long-term concerns about changing trends in the market.
3)	Active support in cash hog values midweek continues to focus on tighter supplies of market-ready hogs to packers as hog weights have started to aggressively shift lower over the last week. This is expected to continue to tighten supply levels in the next several weeks.	3)	Moderate pressure in lean hog futures Wednesday has not signaled a market reversal, but the potential that commercial traders may be slowly backing away from the complex could cool the recently hot lean hog complex.
4)	Traders will closely monitor the weekly Export Sales report with sales and shipments to China remaining the focus of the report. This is likely to continue to stimulate additional market volume Thursday morning.	4)	Volatile moves in pork cutout values and wide-ranging shifts in pork cuts over the last couple of weeks has created less consistent commercial buying across the industry. This limits the long-term market trends, as traders start to make purchases not on demand expectations, but daily price swings, adding further volatility to the complex.