DTN Early Word Livestock Comments

Cattle: Steady to Higher Futures: Mixed Live Equiv $137.11 +0.09*

Hogs: Higher Futures: Mixed Lean Equiv $ 89.29 +2.38**

* 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 still remain undeveloped with limited asking prices and bids likely to be seen during the morning Tuesday. Following the release Monday of last week's 5-state Weekly Average price at $111.27 per cwt, the underlying disappointment that average prices fell $0.24 per cwt from the previous week, is starting to create the reality that the upward market shift during December may not be able to be carried into 2021. The challenge that is going to be seen over the coming weeks, is that wide trading ranges reported during the week of cash cattle trade may not indicate the true trend of the market once all of the numbers are in and tabulated. The expectation that cash cattle last week were reported steady to $1 per cwt higher did bring about some increased trade in certain areas, but the bulk of trade at steady to moderately lower than the previous week quickly overshadowed the higher prices that surfaced. That being said, feeders continue to focus on the expectations that packers will need to buy more cattle for the upcoming weeks, this is likely to increase asking prices over the next couple of days. Live cattle will likely be priced at $114, while dressed cattle may hold asking prices of $180 and higher, although active bids may not start to develop until midweek or later. Live cattle futures took the brunt of market pressure Monday with nearby contracts trading at or near $1 per cwt losses. Continued weakness in nearby cattle trade is likely to create additional underlying pressure, although with prices at current levels, prices have a long way to fall to indicate any downward technical pressure. With nearby contracts still hovering within striking range of recent December highs, the potential for renewed buyer support may move back into the market, especially if corn prices start to stabilize. Feeder cattle futures quickly bounced back from early week losses, potentially creating focus on buyers stepping back to the complex as feeder cattle prices move near the $136 per cwt in spot month contracts. This may continue to add further buyer interest over the near future, although prices may be unable to break away from the previous market range. Boxed beef values continue to show little direction, with mixed prices seen Monday, leading to what could be a sluggish market shift as seasonal weakness is typically seen during the first quarter of the year. This lack of underlying support in beef values could quickly curb optimism in the cash cattle complex over the coming weeks.

Firming market tone continues in lean hog futures during early January, although the focus is on deferred summer contracts, while nearby prices continue to struggle to keep up with the longer-term momentum in the market. Spring contracts bounced around in a narrowly mixed price direction Monday, although the strong upward shift in pork cutout values is starting to indicate that traders are coming out of the holidays with a much better expectation that pork movements will continue to gain momentum. The current price point in the pork complex is creating further domestic and export movement as pork continues to be priced as an economic protein source alternative. This is driven by firm support in primal cuts, as traders look for more normal post-holiday buying patterns to develop during the upcoming months. Ham cuts led the market rally higher in pork cutout values. Wholesale pork values surged $2.38 per cwt higher, although this was squarely placed on the $13 per cwt rally in ham cuts, and quickly offset firm market losses in both picnic and belly cuts during early week trade. The wide market shifts in individual primal cuts is likely to add increased volatility through the rest of the week and could cause weakness to overall pork cutout values in the coming days. 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 496,000 head.

	BULL SIDE		BEAR SIDE
1)	Total open interest in live cattle contracts has continued to increase through early January. At the end of last week, total live cattle open interest moved above 300,000 contracts, the highest levels since March, before the pandemic.	1)	Average cash cattle prices fell from the previous week, with a 5-state average price of $11.27 per cwt. This is $0.24 per cwt lower than the previous week and is likely to create concern of further cash market weakness through the rest of January.
2)	Increased asking prices are expected to quickly develop during the week with feeders focusing on the need for packers to get access to larger cattle runs as 2021 continues. This could push active trade to the end of the week as feeders are likely to hold tight to early asking prices.	2)	Corn prices hovering near the $5 per bushel level will continue to add concerns of production cost gains and limit price support in feeder cattle trade.
3)	Sharp gains developed in pork cutout values, with ham cuts leading the complex higher with a $13.02 per gain Monday. This underlying support is helping to solidify firm buyer support developing during early 2021.	3)	Limited short-term buyer support in lean hog futures seems to be focusing more attention on the availability of ample market-ready hogs in the system. This could limit renewed buyer support during the week.
4)	Active gains in deferred lean hog futures have posted summer contracts near $85 per cwt. This is setting new contract highs in these late month contracts and helping to focus market attention on further growth potential in the complex.	4)	High feed prices will continue to add pressure to hog markets, although the focus of elevated corn and soybean meal markets is not as evident as in feeder cattle prices.

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

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