General Comments:
Cash cattle markets remain generally quiet early Wednesday morning as increased bids are expected over the next couple of days. A handful of cattle were reported traded Tuesday in the South, but the lack of volume makes it too hard to indicate a good trend to the market at this point. Given the previous support in futures trade and firming boxed beef values, it is likely that feeders will continue to price cattle aggressively, but whether it is enough to offset the expected pressure coming from packers as they limit bids through the week is yet to be determined. Although additional limited activity is possible Wednesday, it is likely that active trade will be delayed until Thursday or Friday. Last week's 5-Area weekly average price fell to $109.52 per cwt, which is a $1.75 per cwt loss from the previous week. The inability to curb current cash market pressure through the end of the week could set a weaker tone with prices potentially testing the $106 to $107 per cwt levels through the end of January. Despite early week support in the cattle trade Tuesday morning, the pull back in grain prices and lack of follow-through buyer support left prices mixed at closing bell Tuesday. The underlying support is developing in feeder cattle futures with the main focus on falling corn prices and the impact on production costs. But live cattle trade remains much less optimistic with the change in grain market direction indicating that deferred live cattle futures may be slightly overvalued with traders looking for moderate-to-active price adjustments in the summer and fall contract months over the next couple of days. It appears that summer contracts continue to hover around the $115 to $117 per cwt price level, with more aggressive winter market support developing. There are significant questions of beef demand through the end of 2021, and available supplies, but increased longer-term support continues to hold. Boxed beef prices bounced higher Tuesday with choice cuts leading the upward surge, moving $2.45 per cwt higher as traders focused on moderate product movement early in the week. The potential to bring further price support to both segments of the boxed beef complex continues to add support to market prices, although there are questions about renewed market support despite the seasonal market softness during the first quarter of the year. Growing questions of renewed balance between retail and food service meat demand will continue in the upcoming weeks and months.
Active pressure developed in all nearby lean hog futures Tuesday. The support early in the session quickly eroded as traders continue to focus on a pullback in other ag-related markets and continued pressure in pork prices through the month of January. February futures led the complex lower, falling $1.45 per cwt, testing last week's lows of $66.30 per cwt. Although spot-month contracts closed slightly above that level, the growing weakness in the complex continues to add pressure to the lean hog complex. Pressure developed in pork cutout values once again with the cutout value falling $1.10 per cwt. The market has remained extremely volatile during the month of January with wide swings seen in one cut each day. Ham prices tumbled $8.52 per cwt Tuesday, leaving limited support in the rest of the cutout value. This added uncertainty to the entire complex and likely will lead to additional midweek market pressure. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents lower. Wednesday slaughter numbers are expected near 496,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Active gains in nearby feeder cattle futures not only focus on eroding grain prices but continue to point to feeder cattle prices at or near long-term support levels, which is sparking renewed buying interest in the market. |
1) | Active pressure in cash cattle trade over the last two weeks is causing concern that further pressure will develop during the remainder of January. |
| 2) | Sharp overnight price pressure in corn and soybean markets points to lower feed and production costs in the livestock market. This is expected to give prices a moderate boost as trade opens Wednesday. | 2) | The inability for deferred live cattle futures to keep pace with moves in feeder cattle trade during the week, could limit short-term buyer support in the complex over the next few trading sessions. |
| 3) | Strong underlying pork demand continues during the month of January, helping to clear current production and focus on further market support over the coming weeks. |
3) | Ham cuts tumbled lower Tuesday in the pork cutout market. Active pressure by one or more market cuts continues to derail any underlying support developing over the last couple of weeks. |
| 4) | Long-term support continues to hold in summer lean hog contracts with June through August futures holding a $16 to $18 per cwt premium to current price levels. |
4) | Continued pressure is seen in negotiated cash hog values during the week. The inability for cash values to find stability will likely lead to further widespread weakness through the complex. As the strong cash market discount continues to hold. |
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