Tuesday, January 19, 2021

Tuesday Morning Livestock Market Update - Upward Market Shift Sought Following Long Weekend Break

General Comments:

Cash cattle trade last week remains generally disappointing with cash values falling $2 to $3 per cwt dressed in the North and $1 to $2 lower live in the South from the previous week. The late week support in live cattle and feeder cattle futures last Friday should help to rekindle steady-to-higher market expectations as packers and feeders continue to focus on moving and securing cattle numbers for the coming weeks. Bids and asking prices are expected to remain quiet through most of the day Tuesday, but the direction of futures and boxed beef prices will go a long way in helping to regain last week's losses. Strong triple-digit gains in all cattle futures Friday is likely to be carried over through the long weekend break. March feeder cattle futures led the complex higher, able to push prices $2.45 per cwt higher at closing bell Friday and move prices back above $135 per cwt. This may stimulate additional longer-term buyer support as buyers appear to be lining up to step back into the complex following last week's price correction. Little has changed fundamentally in the beef market during the month of January, but the potential for better days in the future is creating additional hope and optimism in all nearby and most deferred contracts. Boxed beef prices remain under pressure from seasonal market factors, but this was not able to hold prices down across the board Friday. Choice cuts fell 45 cents per cwt, but select cuts were able to offset the weaker market trend at the end of the week, gaining $2.01 per cwt Friday. This also narrowed the choice/select price spread to under $10 per cwt. Seasonally, this spread narrows at this time of year and these moves are not unexpected, but the fact that limited premium in choice cuts exists continues to limit the outlook for strong market support in either beef market to develop over the coming weeks.

Nearby lean hog futures quickly put an end to the two-week market slide seen during early January in lean hog futures. This is helping to create renewed buyer support in the complex and bring increased buyer interest to the table. The ability for spot-month lean hog futures to hold prices near or above the $68 per cwt is expected to bring about increased buyer support through the entire complex and stimulate further market interest Tuesday. Renewed buyer support in futures trade did little to support cash hog or pork values at the end of last week. Pork cutout values fell 48 cents per cwt, looking for additional support as prices have remained variable through the last week. The price shifts in pork cuts have been extensive, allowing for increased market shifts leading into the long weekend break. Traders are expected to focus on short- and long-term movement in the complex over the next couple of days, which is creating an opportunity for additional product movement through the last half of January. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents lower. Tuesday slaughter numbers are expected near 496,000 head.

BULL SIDE BEAR SIDE
1)

Strong upward moves in feeder cattle futures may be the shot in the arm the cattle complex needed Friday to move past the recent retraction in the market.

1) Cash cattle trade moved lower once again last week. The inability for feeders to keep prices steady at best is creating growing concerns that packers may continue to have increased leverage in the weeks to come.
2)

April live cattle futures have moved above $118 per cwt once again with increased underlying support seen at the end of the week. The ability to maintain commercial buyer support to a moderately oversold market may spark renewed long-term gains in nearby and deferred contracts.

2)

Limited futures trade is expected early Tuesday morning. The lack of active buyer support following the long weekend break could quickly reduce last Friday's aggressive market gains, adding increased pressure and volatility back into the complex.

3) Active triple-digit gains in spot month February futures sparked renewed interest in the complex. This pushed prices back near $68 per cwt, helping to end the two-week market slide developing across the complex. 3) Picnic pork cuts fell $10.88 per cwt on Friday, creating additional wide market shifts in pork cutout values. This lack of underlying stability in the market is adding questions of further volatility and uncertainty about the ability and desires for prices to sustain firm gains over the coming weeks.
4)

The focus on continued strong pork demand in export and domestic markets has created moderate optimism. This is expected to help stimulate slow but steady growth over the next few months.

4) Cash hog values have continued to struggle during early January. Even though packers have packing plants back online with normal schedules, the need to increase prices given the number of market-ready hogs available at their disposal is limited. This could continue to widen the price gap between cash values and lean hog futures. With the current cash price at a $15.20 per cwt discount to spot futures trade.




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