General Comments:
Cash cattle markets remain quiet early Tuesday morning, although for the moment, the aggressive pressure in futures trade is not expected to have a dramatic impact on cash cattle values over the next few days. Active cash cattle trade is expected to be delayed until the second half of the week, but packers will need more cattle in the upcoming weeks and feeders, which is leveraging previous market support. This should leave cash cattle prices less impacted to the volatility in the futures trade through early January. Last week's average cash values were reported at $111.51 per cwt for the five-year average. This is a $2.32 per cwt gain from the previous week, and the highest price in seven months. The ability for feeders to stick with increased asking prices despite the widespread futures losses is likely to help to develop late week support in the cattle complex. Follow-through weakness is expected in live cattle and feeder cattle as widespread outside market pressure developed on the first trading day of 2021. But the continued demand for beef continues to create expectations that markets will be able to sort out the aggressive market volatility in a rapid fashion, helping to instill renewed buyer support over the next couple of days, if not weeks. We have talked time and time again over the last three weeks, of the limited trade volume in the cattle market during the holidays, for the most part, the price volatility during Christmas and New Year's week moved prices to the upside in live cattle futures. With traders returning to the market, a portion of this aggressive loss Monday is based on a market correction as market participation returns to a more normal pattern. It is still is important to understand the impact of higher corn prices, and sharp outside market losses on cattle prices. Due to wider trade limits over the past several months, live cattle and feeder cattle did not close limit lower, leaving price limits unchanged, and avoiding expanded price limits, for now. Limited gains in boxed beef values Monday was a welcome sight given the sharp underlying pressure in futures trade. This continues to put the focus on the split direction between futures markets and beef fundamentals. Continued steady support in beef values through the week will go a long way in helping to regain underlying market support in all markets.
Lean hog futures have not been caught up in the downward market pressure seen in cattle futures or most outside markets during the first trading session of the year. For the hog complex, January has started where 2020 has ended, with moderate-to-active buyer support moving back into the complex and pushing futures prices to triple-digit gains. The expectation that additional strong buyer support in both domestic and export markets will continue through the first few months of 2021 is helping to spark renewed interest with nearby contracts testing highs not seen in three months. Limited interest is seen in pork cutout values during early week trade, but this was expected following the aggressive market surge last week. Pork markets are looking for needed stability at the current price levels and confirmation that additional product can be sold at these price ranges. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents higher. Tuesday slaughter numbers are expected near 488,000 head. Saturday runs are expected at 385,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Cash cattle prices confirmed the strong late year rally with the five-state average price moving to $111.51 per cwt, a $2.32 rally from the previous week. This has moved prices to the highest prices in over six months, creating expectations of further support despite futures market weakness. | 1) | Widespread pressure in stock markets and increased COVID-19 cases through the end of the year has had renewed impact in the cattle markets. The concern that further restrictions may be just around the corner if COVID-19 cases do not subside, could further impact overall beef prices and demand. |
| 2) | Boxed beef values have continued to show limited but steady support going into the month of January. Expected strong demand for beef is likely to continue through the upcoming weeks and months. |
2) | The recent rally in corn prices continues to have dramatic effects on all cattle markets. The focus of the higher cost of production is directly impacting both feeder and live cattle futures prices. |
| 3) | Strong follow-through support is quickly moving back into lean hog futures trade. Hog futures are focusing more on the ability to continue active pork movements than the impact on feed prices on production costs. Traders exiting the cattle market have also started to trickle into the hog complex in order to avoid the aggressive market volatility. | 3) | Lack of active gains in pork cutout values or cash values through the next few days could limit the aggressive moves in futures trade over the last week. |
| 4) | TExpectations of strong export sales through the upcoming months, with the focus on China's continued need for pork, is likely to sustain current buyer support across nearby and most deferred lean hog contracts. |
4) | Packers continue to see aggressive market-ready hogs available for processing. This is expected to continue over the next few weeks and could limit further upside potential in both cash and futures values. |
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