Wednesday Morning Livestock Market Update - Further Gains May Be Difficult

GENERAL COMMENTS:

The rally in the cattle complex seems to have been technical in nature for the most part. The rebound of the stock market and many other commodity markets seemed to spill over into the cattle complex. There is also the fact that the Cattle on Feed report will be released Thursday, but that generally results in trading activity being more subdued as they position themselves ahead of the report. Cash activity certainly did not trigger the rally as cash trade developed Tuesday $1.00 to $3.00 lower. The weakness of boxed beef also did not support the rally with choice down $0.99 and select down $0.75. Feeder cattle futures defied the usual pattern, rallying despite the strength of corn. The Cattle on Feed report is estimated to show on-feed numbers at 99.8%, placements of 103.8% and marketings of 104.5% compared to November 2020.

Hogs could make a case that the strong rally of futures Tuesday was warranted. After all, cash on the National Direct Afternoon report showed an impressive gain of $2.18 during a holiday-shortened week when packers were expected to remain lethargic and bid lower. Packers are possibly preparing for the potential for tighter supplies next year or increasing demand or maybe both. It appears the holiday period might be a bit more exciting than usual and previously anticipated. Cutouts did not provide support with price down $1.58.

	BULL SIDE		BEAR SIDE
1)	It appears short covering needed to be done rather than long liquidation prior to the Cattle on Feed report. This could continue Wednesday.	1)	Lower cash cattle Tuesday set the stage for the rest of the week and weaker boxed beef prices indicate slower demand.
2)	Cattle supply is anticipated to be tighter early next year, which could turn the market higher once we move through the holiday period.	2)	The rally of futures Tuesday was not supported by underlying fundamentals. This could be a flash in the pan as traders were positioning ahead of the report. The trend remains down.
3)	Strong cash hogs Tuesday may be an indication of more aggressive buying through the holiday period as packers increase ownership.	3)	There remains a significant amount of market-ready hogs available to the market. Packers may not be as aggressive the rest of the week.
4)	Traders might be anticipating a friendly Hogs and Pigs report Thursday and thought futures were underpriced. This triggered short-covering as well as new buying interest.	4)	The rally of futures may be limited due to the upcoming Hogs and Pigs report and the holiday period.