Thursday Morning Livestock Market Update - Strong Cash Continues to Support

GENERAL COMMENTS:

Cattle have shown some exceptional strength so far this week with the potential for more gains. Packers had to pay as much as $5.00 higher Wednesday in the North in order to purchase the cattle they need for the beginning of the year. Cattle have not traded in the South yet, but that is expected to surface Thursday. Feedlots have the upper hand, knowing packers need to procure cattle. The online auction for fed cattle Wednesday showed no sales as bids of $138.50 were passed over as reserve prices were mostly $140. Boxed beef was higher again with choice up $1.05 and select up $1.00. Beef demand is uncertain moving into the new year, but the fact that packers are paying higher prices to obtain cattle provides a good indication it could remain strong. Maybe more beef will be on the menu in California after Prop 12 comes into effect and pork supplies in the state might be short resulting in higher prices. Consumers in the state may need more beef to fill the void.

Wednesday, December hog futures were able to regain the losses of Tuesday, even though cash declined $0.52 on the National Direct Afternoon report. April through August contracts were also able to close higher with June through August posting new contract highs. Some of the gains may have been due to spillover strength from cattle, but mostly it appears traders have a bullish attitude over prices and supplies next year. Cutouts declined $2.60 as wide price swings seem to be normal. Weekly export sales will need to be strong, or futures could retrace into the weekend. Friday hog slaughter is estimated at 272,000 head. There will be no slaughter on New Year's Day.

	BULL SIDE		BEAR SIDE
1)	Live cattle futures are making new contract highs, extending the strong rally of the past week. Traders are bullish.	1)	Cattle futures may retrace if weekly exports sales are not good. Traders may have become too optimistic.
2)	Cash is strong as packers need cattle to satisfy strong demand. Feedlots are confident of higher prices and are holding for higher cash.	2)	There are sufficient cattle for demand and, once packers have purchased sufficient supply, they will be less aggressive again.
3)	Hog futures continue to make new highs despite some uncertainty over Prop 12 and the strength of cash.	3)	Hog futures are supported by the anticipation of tighter supply next year, not by current fundamentals.
4)	Hog supply is expected to tighten next year, which may increase prices as both domestic and international demand needs to be satisfied.	4)	Overall demand will be uncertain as the market moves into 2022 and the impact of Prop 12 comes into effect. The industry will be uncertain as to the distribution of pork supply and how it will be absorbed.