DTN Early Word Livestock Comments

Cattle: Steady to Lower Futures: Lower Live Equiv $148.75 -3.58

Hogs: Lower Futures: Mixed Lean Equiv $ 83.85 -0.27**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

General Comments:

Cash cattle markets are undeveloped Tuesday morning as both sides sit back and watch the fireworks in the futures and boxed beef markets while keeping a close eye on outside market direction early in the week. Showlists for the week appear to be mixed with Southern offerings generally larger, while cattle offered for sale in the North are generally steady to lower than last week. At this point, it is still hard to find reliable asking prices or bids in the market, although feeders will likely continue to start out with cattle priced higher than last week, as initial asking prices of $112 live and $174 per cwt are not out of the question. Packer interest may not start to develop until Wednesday or later, but even then, it is uncertain just how many cattle packers will actively seek over the next couple of weeks. It is important to remember that the "14-day window" generally used for near-term deliveries will put cattle in the middle of Christmas week. We are getting to a point in the year when market activity will start to be subdued by holiday schedules. With Christmas and New Year's falling on Friday this year, holiday week production will be heavily front-loaded on Monday through Wednesday, with limited end of the week production likely to significantly reduce overall plant production capacity in the last two weeks of the year. Boxed beef values tumbled lower, led by an $8.03 per cwt loss in select cuts and creating concerns that further market pressure may quickly be developing. Not only are traders concerned about a demand shift in meat products, but the inability for futures and cash markets to follow boxed beef prices higher over the last month is leaving the previously elevated prices unsupported as the entire market turns lower. Firm follow-through pressure is likely in both live cattle and feeder cattle trade early Tuesday morning. Although light volume seen in the first couple hours of trade may bring in a portion of short-covering activity, the underlying tone of the market is expected to remain weak as traders try to wrestle with the potential beef demand losses likely to be over the coming weeks, especially in food service industries.

Early week price pressure in all lean hog futures continues to add uncertainty to the complex as traders wrestle with outside market weakness and the potential for meat demand to see additional late year pressure due to rising COVID-19 cases. Although the recent support in the market focusing on brighter hopes of a vaccine rollout over the next several weeks helped to boost previous price levels, increased cases throughout all areas of the country during early December continues to add concerns of further restrictions and the expectations that trade will continue to remain volatile in the coming days and weeks. Limited pressure in pork cutout values Monday followed the weakness in the beef sector, but the lack of aggressive support in pork prices over the last few weeks is leaving markets much less vulnerable for additional aggressive losses. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady 50 cents lower. Slaughter Tuesday is expected at 493,000 head.

	BULL SIDE		BEAR SIDE
1)	Packers continue to remain aggressive through December, which is expected to focus on running plants at capacity well into Christmas week. This will continue to help maintain market currency through the holiday season.	1)	Sharp losses in boxed beef markets with select cuts falling over $8 per cwt Monday created significant concerns about the ability to move additional beef product in the current price ranges.
2)	Short-term price pressure in grain trade is allowing for a reprieve from surging feed prices and production costs. This may limit the downside market pressure in feeder cattle trade, especially cash sales for young calves and yearlings moving into feed yards through the end of the year.	2)	Triple-digit losses in futures trade of both live cattle and feeder cattle contracts is leaving markets on the defensive when traders move back into the complex Tuesday. This could spark further early losses as fundamental support is quickly eroding.
3)	Expected strong pork exports are likely to develop in the upcoming months, not only is there still a need to access increased pork supplies through Asia, but global buyers are expected to take advantage of the price weakness developing in the complex.	3)	December and February lean hog futures have moved back below the $65 per cwt trading point. This is expected to stimulate additional technical pressure in the near future.
4)	Deferred summer lean hog prices are much more stable than nearby contracts, indicating that the current pressure may be limited to current production and demand levels through the end of the year and early 2021.	4)	Lack of price support in cash hog and pork cutout values during early weak activity is adding to the underlying softness in the entire pork complex. The focus on widespread outside market moves will have a significant impact on the ability to stabilize cash values in the upcoming days.

Rick Kment can be reached at rick.kment@dtn.com

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