General Comments:
Limited activity is seen in cattle country midweek with most feeders still not pulling the trigger as they wait and hope that the volatility brought about by surging grain trade Tuesday will subside as the week continues. A few deals were inked in the North with dressed trade at $173 to $174 per cwt. This is generally $2 to $3 per cwt below last week's average price. There is too many moving pieces in the market and trade volume remains too small to indicate if these price level will set the tone for the week and bring about lower money in most other areas. But given the focus on outside grain market gains and the subsequent pressure on feeder cattle and nearby live cattle futures, it is likely that cash markets may remain steady at best for the week. Feeder cattle futures led the complex lower Tuesday with aggressive triple-digit gains in all contract months. Even though nearby contracts closed with the most aggressive losses between $2.50 and $3 per cwt lower, the focus on corn market moves will continue to be a major driver in the feeder cattle complex. Given the underlying expectation that cattle numbers will tighten significantly through the rest of the year, and elevated feed prices will most likely limit heavy weight cattle, the downward pressure in feeder cattle futures may be limited by the expectation of firming long-term beef demand. Live cattle futures continue to hover within a wide sideways trading range, with Tuesday's market pullback testing last week's market low at $112.30 per cwt. But the ability to keep prices above the $110 per cwt in February futures is likely to limit widespread market liquidation. Boxed beef values bounced higher Tuesday with triple-digit gains seen in choice and select markets. The firming support in beef values is good news given the continued strong movement of product and ability to clear current processing levels in a timely and aggressive manner. This is likely to add to further, but choppy support through the boxed beef trade in the days and weeks to come.
Lean hog futures appear to be taking the surging grain market and feed prices in stride, with moderate-to-strong gains seen through the entire complex. Given the shorter time period of feeding cycles in the hog market compared to cattle, the elevated feed markets are quickly moved through the lean hog and pork systems with much less dramatic volatility compared to the cattle complex. This is helping to post moderate support in nearby contracts while summer and fall contract months have fully embraced the higher production costs and are working these higher corn and soybean meal prices into lean hog contracts. This is further widening the price premium in these deferred contracts with July contracts now trading at an $18 per cwt premium to spot February futures. The pressure in pork cutout values Tuesday may create moderate price retractions Wednesday morning, but the underlying tone of the market is still expected to remain firm. Sharp gains in ham cuts on Monday were wiped out Tuesday afternoon as ham prices quickly adjusted lower, falling over $14 per cwt. This created wide pressure in the entire cutout equation, allowing carcass values to fall $4.19 per cwt. Further wide market swings in any of the primal cuts will be closely watched over the next few days as traders look for the potential to establish market stability during early January. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents higher. Wednesday slaughter numbers are expected near 496,000 head. Saturday runs are expected at 256,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Deferred live cattle futures have started to work higher as traders are starting to factor in the higher feed and production costs due to surging corn markets. This posted triple-digit gains in fourth quarter live cattle futures Tuesday, helping set the tone for further long-term market support through the end of the week. |
1) | Sharp losses in feeder cattle futures once again have become the highlight of the livestock market. Following limit gains in corn prices Tuesday, the focus on higher feeding costs continues to limit feeder cattle buyer support in all regions. |
| 2) | Firm support in boxed beef values continues to develop through the week. The ability to continue to move large amounts of beef through the system continues to put the focus on tighter supplies as 2021 progresses. | 2) | Following Tuesday's USDA reports, corn futures surged higher, quickly breaking through the $5 per cwt threshold, quickly on the way toward $5.50 per bushel. These higher costs could bring further devastation to the cattle market system. |
| 3) | Lean hog futures continue to adjust higher with active commercial and noncommercial support moving into all contracts. Triple-digit gains in summer contracts once again moves the focus on expected tighter supplies and strong demand. |
3) | Sharp losses in ham and picnic cuts Tuesday offset early week support and not only caused pork cutout values to tumble but put widespread volatility back into pork pricing. This may leave pork prices whipsawing higher and lower through the rest of the week. |
| 4) | Strong export demand is expected to continue during early 2021, picking up where 2020 left off. This is expected to limit overall supply levels despite active pork production continuing through the next several months. |
4) | Cash hog values have been unable to gain momentum during early January with packers running at full throttle but finding ample market-ready hogs available without having to dig deeper into their pockets to pay for them. The current available supply of hogs may continue to pressure cash values over the next couple of weeks. |
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