Wednesday Morning Livestock Market Update - Further Gains Expected for Complex

GENERAL COMMENTS:

Packers needed cattle and raised bids in order to obtain them on Tuesday. Dressed cattle in the North traded as much as $3.00 higher at $220. This pushed front-month December live cattle futures up $1.17 into the close. December had to stay in line with cash as the contract settles on Friday. Boxed beef also provided some support with choice up $0.19 and select up $0.91. More business is expected to be done across the complex as feedlots now know what they can get and packers know what they need to pay. Business will likely want to be done earlier this week rather than later due to holiday and the end of the year. Feeder cattle futures posted a strong close as support stemmed from higher cash cattle as well as significant weakness of corn prices.

Hog futures showed some spread trading likely due to traders wanting to buy into later contracts due to tighter hog supplies later as indicated by the report last week. the large increase in cash yesterday of $2.20 as reported on the National Direct Afternoon report, did not have as much impact on would have been expected. Traders have seen some wild swings in cash over the past few weeks and were cautious over the maintaining of the strength the rest of the week. There is also greater concern developing over the slaughter pace that will be maintained due to the surge of COVID-19 and the disruptions that will cause in the workforce. Cutouts were higher providing some support, but that may be difficult to maintain through the rest of the week.

	BULL SIDE		BEAR SIDE
1)	Higher cash in the North should also develop in the South as packers clearly need to obtain cattle to satisfy strong demand.	1)	Later live cattle contracts did not gain much even though cash moved higher. Traders are a little cautious over the level of demand early next year.
2)	Lower corn price due to a slight change in the weather forecast for Southern Brazil was supportive to feeder cattle. This should continue today with follow through buying in futures.	2)	Disruptions in slaughter capacity due to the surge of COVID-19, may reduce the number of cattle packers can purchase and process due to the impact on the workforce.
3)	Strong cash and pork cutouts increase the price potential as we move through the end of the year. Packers are generally not aggressive during the holiday period.	3)	Packers want to purchase hogs now before the new year rolls around and Prop 12 is implemented. They may not be as aggressive early next year as they work through the implications of the new requirements.
4)	New contract high closes in June and later contracts indicates the market is bullish in the long term. Traders continue to increase their long positions.	4)	February hogs will feel the brunt of any back up of supply due to Prop 12 or slower demand in general.