Thursday, January 7, 2021

Thursday Morning Livestock Market Update - Have Lean Hog Futures Peaked

General Comments:

Just a few cattle trades were reported through the afternoon Wednesday, with live prices listed at $112 per cwt. The amount of business and interest is not enough to establish a good market trend, but the continuation of these prices would point to a $1 to $2 per cwt gain over last week's price levels. Significant trade is needed over the next two days, and packers are expected to become more active Thursday morning. Asking prices remain at $114 per cwt live and $180 and higher dressed in the North. Unless there are sharp shifts in futures trade or boxed beef values through the end of the week, it is likely that feeders will continue to price cattle until the end of the week with the expectation of higher money from last week's levels. Cattle futures remain caught in the crosshairs between higher corn and grain prices and the underlying firmness developing in beef values. Most live cattle futures were able to etch out a narrow-to-moderate gain at the end of Wednesday's trading session, while active pressure redeveloped in feeder cattle trade emphasized the market uncertainty developing in the cattle complex. Traders continue to focus on the underlying demand support, but the focus on corn futures prices nearing $5 per cwt bushel is likely to curb further market support, especially in feeder cattle trade. Feeder cattle futures have tumbled nearly $5 per cwt over the last two weeks, creating growing concerns about the future cost of production and uncertainty if retail beef prices will be able to offset the higher costs, due to demand reductions at higher sticker prices. Continued light pressure developed in beef values Wednesday, creating concerns that the recent market support may be hard to continue given the outside market factors developing across the complex. Traders are focusing on reports of record COVID-19 numbers redeveloping during early January, which is not only creating growing national concern, but also may add to new restrictions. This has the potential to cause further damage to food service demand, which has already been significantly hindered through the pandemic.

Triple-digit losses in lean hog futures Wednesday sparked renewed concerns that additional market weakness may develop through the end of the week despite prices hovering near long-term resistance levels. If February lean hog futures are not able to break through October highs of $71.41 per cwt these current resistance levels will likely hold and keep prices rangebound within a very wide sideways market trend. With spot-month contracts briefly trading above these target price points, before going on a triple-digit market retraction, traders are starting to feel that the market high may have been set and could struggle to regain buyer confidence. Pork cutout values remain stable with values falling just 2 cents per cwt in moderate midweek trade. The focus on the weekly Export Sales report Thursday morning and continued support in the ability to drive additional interest in the complex could help to bring about even more trader interest but may not significantly change the direction of pork values in the short term. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents lower. Thursday slaughter numbers are expected near 498,000 head. Saturday runs are expected at 385,000 head.

1) Expectations of steady-to-higher cash cattle trade continue to add optimism through the entire cattle market through the end of the week. Limited live trade at $112 per cwt Wednesday continues to focus on the potential for further market gains during the month of January. 1)

Widespread market volatility is possible following the Capitol riots Wednesday in Washington, DC. This could lead to early price shifts not only in livestock markets, but most outside market sectors.

2) Live cattle futures continue to trade well above both 40-day and 100-day moving averages based on underlying fundamental support in the beef complex. 2) Elevated corn prices continue to be on the minds of all cattle and livestock producers as well as traders. The higher production costs could lead to market uncertainty for the next several months.
3) Despite the midweek pullback in nearby lean hog futures, February contracts are near 11-month highs, with the potential to spark renewed buyer support, which could once again create strong market momentum in the lean hog futures trade. 3) Sharp losses in cash hog prices Wednesday created concern that further pressure may continue now that packer schedules are back to full strength with the Columbus Junction plant coming back online. This could lead to further pressure based on the number of hogs waiting to be shipped to packing plants.
4) Traders are closely watching the morning release of the weekly Export Sales report. The focus on moderate-to-strong pork exports, especially to China should help to rekindle underlying support in the complex. 4) The aggressive price break in futures trade Wednesday is creating concerns that the market run is higher and the potential to move to long-term highs may have ended. This could lead to mixed price movements as traders try to establish short- and long-term market support in lean hog futures.

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