Tuesday Morning Livestock Market Update - Expanded Cattle Futures Trading Limits Today

GENERAL COMMENTS:

Clearly the cattle complex did not have the Cattle on Feed report factored in. Live cattle futures gapped lower on the open Monday and never looked back. Fund liquidation ran rampant as stops were triggered as futures fell through layers of technical support. The last time we saw declines of this magnitude was in 2020 when COVID impacted the market. The pressure Monday moved February live cattle limit down, resulting in expanded trading limits Tuesday of $10.00. Significant selling pressure likely will take place Tuesday as margin liquidation will pressure the market. Boxed beef was the bright spot with choice up $1.26 and select up $1.22. With the fall of futures, packers will bid lower this week, using the weakness to their advantage. Feeder cattle suffered greater losses with the trading limit expanded to $12.25 Tuesday. A thinner trade volume will likely exaggerate the move. Buyers of feeder cattle will pull back significantly at auctions this week.

Hogs closed slightly lower in all contracts except December. Thankfully, futures did not close at the new contract lows, which could trigger some bottom-picking buying interest. This may be supported by higher cash on the National Direct Afternoon Hog report showing a gain of $3.85 and the increase in cutouts of $0.58. If futures move higher Tuesday, it may be only in the short-term as cash and cutouts remain unable to find support. Greater uncertainty seems to be developing as the beginning of the year approaches when Prop 12 comes into full effect.

	BULL SIDE		BEAR SIDE
1)	Live cattle futures left chart gaps on the open Monday that generally will be filled at some point.	1)	Expanded limits and margin liquidation may push cattle futures lower as further weakness continues.
2)	Feeder cattle closed their chart gaps that had been open since June. Traders may buy back into the market once the liquidation slows.	2)	Fund liquidation generally runs two to three days before some stability is found. Smaller spec traders will add to the liquidation.
3)	Hogs did not exhibit spillover pressure from cattle and with higher cash and cutouts, futures could bounce.	3)	New contract lows in hog futures Monday do not bode well for the market technically.
4)	Packers may be more aggressive with purchases again Tuesday and take care of purchases early in the week rather than later.	4)	Any price strength Tuesday may be short-lived as cash and cutouts cannot find consistent support and a higher trend.