DTN Early Word Livestock Comments

Cattle: Steady to Lower Futures: Mixed Live Equiv $136.27 -0.35

Hogs: Steady Futures: Higher Lean Equiv $ 80.15 -2.98**

* 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 remain undeveloped for the week with both sides unwilling to make a significant push to trade cattle early in the week. With asking prices hovering around $110 live basis in the South, and still quiet in the North, the focus on late week trade will potentially direct market activity. It is not unlikely that cash cattle trade would be pushed to the end of the week with some trade holding out until after the Cattle on Feed report is released Friday. The underlying support in futures trade has the potential to allow for steady money by the end of the week, although the combination of boxed beef weakness and limited amount of cattle needed by packers the next two weeks will likely curb packers' aggressiveness. Futures trade is expected light early Wednesday morning with traders still focusing on firm underlying support in the feeder cattle complex. Nearby live cattle futures remain contained within a wide, but stable sideways market trend, which has held over the last month as spot February contracts remain well positioned between $110 and $114 per cwt. The optimism focusing on the longer-term hopes of returning to "normal" life with the help of a vaccine is still being overshadowed by record numbers of COVID-19 cases reported and growing concerns that the upcoming holiday seasons will make things even worse in the short term. The ability to keep traders focus balanced between short- and long-term direction will be the key in helping to limit wide and volatile market swings over the near future.

Firm underlying support continues to develop in lean hog futures trade despite the recent and continued pressure in pork cutout prices. Lean hog futures have gained technical buyer support, as prices have rallied above support levels and quickly honing in on December highs. The ability to sustain current buyer support through the holiday season is likely to create further market support and stimulate longer-term market momentum based on the current demand for pork in domestic and export markets. Recent pressure in pork prices has allowed it to be viewed as an economic meat price option once again as traders are starting to transition from current pandemic demand projections, to the potential that increased consumer buying in retail and food service activity could start to regain traction within a number of months. Although there still will likely be uncertainty around current and planned restrictions, the market seems to be taking a longer-term focus now that a vaccine rollout is underway. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady to 50 cents higher. Wednesday slaughter numbers are expected near 494,000 head. Saturday runs are expected at 378,000 head.

	BULL SIDE		BEAR SIDE
1)	Firm underlying buyer support in feeder cattle futures and deferred live cattle trade Tuesday is pointing to potential light but steady market support heading into the holiday seasons.	1)	Boxed beef prices have not yet stabilized, leading to concerns that further losses may develop in the upcoming days. This could limit active buyer interest in both cattle futures and cash cattle markets during the holidays.
2)	With recent lows of $110.77 per cwt in February live cattle futures, traders are looking for renewed interest moving into the lightly traded live cattle complex over the next few days. This has the potential to move price levels to the top end of recent market ranges. A move through $114 per cwt in February futures before the end of the year would help spark renewed buyer interest, creating further support for early 2021 price gains.	2)	Live cattle futures have struggled to show significant buyer support in nearby contracts. Despite the gains in feeder cattle markets, the narrow losses in spot live cattle futures point to limited short-term support.
3)	Cash hog prices inched higher Tuesday. This created expectations that increased packer spending may continue during the week while packers gain access to needed hogs for the holiday season.	3)	Continued pressure in pork prices continues to limit the momentum of futures gains. There are concerns that additional pressure may develop once most holiday buying activity has wrapped up in the next few days.
	Nearby lean hog futures have surged over $3 per cwt without taking a breath over the last several days. The aggressive buyer support developing in the complex is helping to quickly move the discussion away from recent market pressure and back to potential pork demand growth and sustaining a healthy pork market moving into 2021.	4)	The aggressive surge in futures prices may leave nearby lean hog futures vulnerable for a late week market correction. This could lead to additional and wide price volatility before and into Christmas week.

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

(c) Copyright 2020 DTN, LLC. All rights reserved.