Wednesday Morning Livestock Market Update - Futures Find Little Support

GENERAL COMMENTS:

Traders had little to go on Tuesday, leaving them with only the ability to scalp the market for a small profit. The increase on Monday was not sustainable without the support of cash and boxed beef prices. It does not look to be much different Wednesday. Feedlots have been a bit slow in establishing solid offers. Packers will not be willing to pay more than steady money with last week due to further weakness of boxed beef Tuesday. Choice cuts declined $2.50 with select cuts down $4.84. This combination is not very conducive to support. December live cattle are trading at a discount to cash but that might be warranted if packers pull back further over the next two weeks and feedlots want to move cattle before the end of the year.

February hogs are now the lead month and hold a substantial premium to cash. The contract has two months to trade; a lot can happen over that time. The National Direct Afternoon report showed a nice increase of $1.95. This was a bit surprising, not in the fact that packers were a bit more aggressive early in the week, but that they paid as much as they did. Supply might be showing early signs of slowing. That was not enough to support the market as the decline in cutouts of $1.55 was the anchor on futures. Futures are expected to be choppy Wednesday, possibly trading on both sides of unchanged. USDA announced the Spot Market Hog Pandemic Program (SMHPP) which is designed to provide assistance to hog producers who sold animals from April 16 through Sept. 1, 2020. USDA has made $50 million available to eligible producers.

	BULL SIDE		BEAR SIDE
1)	Cattle supplies are expected to tighten next year, which will keep the market supported.	1)	Cash cattle are expected to be steady to lower through the rest of the month, leaving futures with limited support.
2)	Lower boxed beef prices should stimulate demand, requiring more cattle to be processed to satisfy that demand.	2)	Packers already have a significant amount of cattle on the books for the rest of the year. This may leave them less aggressive with their bids.
3)	Packers willing to pay more for hogs may be an indication of a decreasing market-ready supply.	3)	Packers may have sufficient hogs purchased for much of the week, allowing them to be less aggressive for the rest of the week. This could result in lower cash.
4)	Hog futures are carrying a substantial premium to cash in the anticipation that price will move higher through next year. This may keep traders buying the price breaks in futures.	4)	February futures are currently holding nearly twice as much premium than they do historically.