General Comments:
The heavy blanket of snow covering most of northern Midwest created a delay in cash market activity from both the packer and feeder side. With many areas setting records for daily snow amounts, feed yard operators continue getting pens cleared and cattle fed. Packers will focus on keeping plant speeds up with already committed cattle on route to plants the priority during the first few days of the week. Now that it appears the bulk of the storm is behind us, both sides are likely to become more active in cash cattle negotiations over the next couple of days. It is expected that asking prices will remain around $114 per cwt live basis, but still hard to pin down on a dressed basis in the North. Bids could start to slowly develop through the day Wednesday, but it is more likely that bids will be more readily available Thursday or early Friday. Given the stalled status of the week, it would not be surprising if active cash trade is delayed until sometime Friday. Live cattle futures contracts continue to regain underlying buyer support as technical support redevelops in the complex. With April contracts moving above $123 per cwt through the week, the focus on establishing a more secure trading range at the new market highs continues to offset growing concerns of higher feed prices. Boxed beef values continue to surge higher, with choice cuts gaining over $24 per cwt in the last three weeks with buyers focusing more on potential and expected demand growth, rather than the fundamental direction in the cash cattle market. Although the underlying support in beef values is expected to be well supported, the concern is that a moderate price correction could quickly develop over the next few days, creating a widespread shift in buyer support, which would limit additional gains in live cattle trade. Feeder cattle futures on the other hand, have started to once again be heavily affected by surging corn prices. With corn prices retracting last week's losses and moving near market highs once again, the focus on higher feed prices is heavily impacting the feeder cattle complex midweek.
Active outside market support continues to be a significant driving force in lean hog futures with traders focusing on the ability to draw commercial and noncommercial buyer support to lean hog futures. That is sparking further technical buying factors as the week continues. Increased momentum is expected in nearby lean hog futures, although the pace at which prices have rallied higher over the last two weeks is starting to open the door for a light-to-moderate price correction. The wide shifts in individual pork cuts continue to develop with ham cuts falling $7.22 per cwt. The tone of the rest of the cuts remained firm, although this shift lower in ham prices put pressure on the overall pork cutout value. Cutout values remain above $80 per cwt, creating additional underlying support in the complex as overall domestic and export demand for pork remains seasonally strong. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to lower. Wednesday slaughter numbers are expected near 485,000 head, but this is still uncertain based on weather and road conditions through the upper Midwest. Saturday runs are expected at 224,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Active gains continue to develop in boxed beef values, creating additional underlying support through beef values and futures trade. The focus on active movement of beef product and strong underlying choice and select values has sparked renewed buyer interest in all nearby live cattle contracts. |
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) | Cattle feeders are expected to aggressively price cattle during the week given the wide-ranging support in futures and beef values over the last week. Anything except moderate-to-strong cash market gains will be viewed extremely disappointing through the end of January. |
2) | Despite the strong upward movement in boxed beef values during the month of January, a concern that buyer support may cool in the near future could bring about a moderate price correction. This would cause a ripple effect through the entire cattle market, causing potential widespread volatility in live cattle prices. |
| 3) | Strong technical support continues to drive additional buyer support into all spring and summer lean hog contracts. This has moved April contracts to year-long highs, while other summer contracts continue to set contract highs through the month of January. |
3) | The weather conditions limiting plant operations and hauling hogs and pork difficult over the past few days has limited plant output and likely kept market-ready hogs backed up through the system. This is likely to further pressure cash values midweek. |
| 4) | The ability to continue to aggressively move pork product in export and domestic channels has sparked renewed commercial buying in all segments of the market, as well as quickly drawing noncommercial investment buying back into the market. |
4) | The expectation that China pork production continues to rebuild will put long-term uncertainty in the domestic pork market. This could impact the ability to move pork product to China over the coming months. |
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