GENERAL COMMENTS:
What a week to step into. Tensions with Ukraine and Russia have escalated given that Russia has now entered Ukraine. Grain prices are through the roof as the invasion of Ukraine will affect trade. The feeder cattle contracts are sweating as grain prices rally to new highs. Boxed beef prices became inverted for the first time since 2018. How about that for the most Monday-feeling Tuesday ever?! Hog prices closed higher on the National Direct Afternoon Hog Report, up $6.77 with a weighted average of $89.33 on 5,075 head. March corn is up 20 1/2 cents per bushel and March soybean meal is up $5.80. The Dow Jones Industrial Average is down 482.57 points and NASDAQ is down 166.55 points.
LIVE CATTLE:
This week may be a short one given that Monday was a holiday, but that doesn't mean there won't be enough business to sort through. Grabbing the live cattle market's attention right from the get-go was that the choice/select spread became inverted -- select prices closing higher than choice prices; see below for exact prices. This doesn't happen very often, but when it does there are a couple of conclusions that can be drawn. First, consumers are tired of high meat prices. Whenever the Choice/Select spread becomes inverted, it's consumers way of saying they're unwilling to continue to pay higher prices for the better product and they'd prefer to take lower quality meat. Second, we know that seasonally the boxed beef market is looking for a bottom, but with this development, the market may face more regression.
Throughout Tuesday's trade, the live cattle market trended higher with ample support from traders, and upon the looming hope that cash cattle will trade higher. April live cattle closed $0.15 higher at $146.02, June live cattle closed $0.40 higher at $141.90 and August live cattle closed $0.30 higher at $140.80. The cash cattle market is anxious to post a strong rally this week with showlists mostly favorable to feedlots. New showlists appear to be mixed, higher in Texas, somewhat lower in Kansas and lower in Nebraska/Colorado. Tuesday's market didn't see any cash buying interest but come Wednesday the market could begin to see some trade. If throughput continues to fly through cattle, then feedlots stand a chance at keeping this momentum in the cash market.
Monday's slaughter is estimated at 123,000 head -- steady with a week and year ago.
Last week's negotiated cash cattle trade totaled 98,691 head. Of that 83% (81,691 head) were committed for nearby delivery, while the remaining 17% (17,000 head) were committed for deferred delivery.
Boxed beef prices closed mixed: choice down $2.45 ($261.64) and select up $1.80 ($263.64) with a movement of 117 loads (82.48 loads of choice, 11.80 loads of select, 4.67 loads of trim and 17.80 loads of ground beef). The last time the choice/select spread became inverted was on 5/23/2018 (choice $203.08, select $205.04, spread -$1.94) and again on 2/27/2018 (choice $202.53, select $214.79, spread -$12.26).
WEDNESDAY'S CASH CATTLE CALL: $2.00 to $5.00 higher. The cash cattle market has a real chance at pushing prices higher this week. Throughput has been aggressive and packers are going to need cattle.
FEEDER CATTLE:
With the rally that sparked the enormous jump in grain prices (due to Russia entering Ukraine) the feeder cattle contracts had little hope of trading higher Tuesday. March feeders closed $1.20 lower at $164.22, April feeders closed $1.72 lower at $169.12 and May feeders closed $1.37 lower at $174.52. The cash cattle market is expected to rally this week (with a price jump of $2.00 to $5.00 not being out of the question) and the support from a strong live cattle/cash cattle market would certainly help. But the question that will go unanswered until the week is done trading is whether the market's support was strong enough to dilute the shock of the grain market's jump. The CME Feeder Cattle Index 2/21/2022: up $0.10, $162.13.
LEAN HOGS:
The lean hog complex didn't bat an eye at trading $1.00 stronger and once the afternoon rolled around the market seemed to laugh and shrug and say, "Let's up this party to over $2.00 strongwe and make the day worthwhile!" Indeed, the nearby contracts saw just that. April lean hogs closed $2.67 higher at $112.07, June lean hogs closed $2.60 higher at $121.22 and July lean hogs closed $2.72 higher at $120.25. And while the pork cutout value closed lower, given the gains that the market made last week, Tuesday's regions of $1.33 wasn't viewed as a big hit. Packers that needed hogs in Tuesday's cash market ended up paying the piper as cash prices jumped $6.77 but the day's volume was modest at 5,075 head. The market is looking to see a larger volume of hogs traded at sometime this week. Pork cutouts totaled 314.27 loads with 275.97 loads of pork cuts and 38.31 loads of trim. Pork cutout values: down $1.33, $108.76. Monday's slaughter is estimated at 479,000 head -- 1,000 head more than a week ago and 20,000 head less than a year ago. The CME Lean Hog Index 2/18/2022: up $1.89, $97.12.
WEDNESDAY'S CASH HOG CALL: Steady to somewhat higher. I know it may seem crazy to say prices could flirt with being stronger come Wednesday, but with how thin supplies of market-ready hogs are, if a packer is caught NEEDING hogs, they'll be at the mercy of the market.
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