Cattle: Steady Futures: Higher Live Equiv: *
Hogs: Higher Futures: Higher Lean Equiv: **
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Cattle futures performed well Tuesday and have done so since the bearish Cattle on Feed report. The market was oversold and ripe for a retracement. Traders had overdone the market to the downside. Packers are still window dressing, waiting to see what feedlots will offer. Feedlot are not anxious to establish offers now that futures have risen over the past two days. Bids and offers should begin to be posted Wednesday but will likely be the usual few dollars apart. Packers may be loath to bid at even steady prices, but the rise of futures may require them to bend a bit. The concern for the market is the inability of futures to hold strong gains that were posted during the day closed around a dollar off their highs with the exception of front-month October, which finishes trading on Thursday. Boxed beef may not support higher prices, which may limit upside price potential.
Hog futures followed a similar pattern as cattle, closing about a dollar off the highs of the day. December was a different story, posting a price swing of $2.00 and finally closing 10 cents lower. Traders might be content with hog prices and might move futures into a sideways pattern for a short period of time. Packers stepped up to the plate Tuesday with higher bids, but once needs are filled, they will be less aggressive. The China news of lower imports next year is becoming old and tedious news. Traders want to focus on the here and now, and higher cash with lower cutouts keeps the market somewhat neutral.
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Feeder cattle have been leading the charge higher, providing some optimism in the market. Live cattle have digested the Cattle on Feed report and have moved to focusing on supply and demand.
Cattle futures have corrected from an oversold market and now may have more difficulty finding new buying interest. Higher cattle numbers are still on traders' minds.
Higher futures may provide more confidence for feedlots to hold for steady-to-higher prices this week. Lower boxed beef is improving demand.
If packers are unwilling to accomplish business at even steady bids, futures may struggle to move much higher. Higher weights and slowing food service demand is not a good combination.
Hogs futures could not hold the highs of the day, but contracts closed higher over the past two days. Traders have taken advantage of the recent lows to get on board to ride the market higher.
The inability of hog futures to hold their highs Tuesday may indicate traders are willing to sell more aggressively at higher prices. Futures achieved a 50% price retracement, which may be difficult to overcome.
Higher cash Tuesday should set the tone for Wednesday with prices expected to be no worse than steady. This will give traders greater confidence to hold long positions in anticipation of a return to the highs.
Lower cutouts may have buyers thinking twice about increasing cash bids Wednesday after their aggressive showing Tuesday.
Robin Schmahl can be reached at firstname.lastname@example.org
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