DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv $258.38 -1.27*

Hogs: Steady Futures: Mixed Lean Equiv $104.88 -2.22**

* 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 trade is starting to develop with light to moderate activity midweek at higher prices in all areas. Live cash cattle trade in the South developed at $120 per cwt midweek, which is generally $6 to $10 per cwt higher than last week's price averages. Dressed northern business is at $190 per cwt, also a strong double-digit jump of $11 per cwt higher than last week's average. The focus on packers looking to gain access to short-term supplies to fuel current and future slaughter schedules is sparking the renewed support in cash values. There is expected to be some additional trade trickling into the market, but at this rate, it is uncertain if either side will hold out until after the Cattle on Feed report is released Friday afternoon. Thursday reports include the weekly Export Sales report Thursday morning, monthly Cold Storage and monthly Livestock Slaughter reports during the afternoon. These reports are not expected to create significant changes in market direction individually, but combining all the information from the reports over the next couple of days will help to set the tone of the market over the next week. The expectation is that the net result of these combined reports will remain bullish for the cattle industry, but there are still a lot of questions about meat supplies and consumer demand. Futures trade remains split between the recent support in futures trade, while trying to look ahead to any significant shifts in late week activity and report surprises that may develop before the end of the week. This is likely to keep prices mixed with limited early activity Thursday morning. Thursday slaughter is expected at 102,000 head.

Mixed trade is expected through lean hog futures complex following the renewed support in deferred lean hog contracts midweek. Trader volume and overall interest is expected to slowly erode through the rest of the week as traders prepare for the long holiday weekend. Although in general, the Memorial Holiday weekend is lacking much of the fan fair and attention as most years due to social distancing and limited travel and gathering, but the fact that markets will remain closed Monday will still limit overall trade interest the next couple of days. Nearby lean hog futures are looking for a sense of stability after eroding from recent market highs. The attention of many traders will be placed on the morning Export Sales report and pork exports to China last week, the Cold Storage and Livestock Slaughter reports released after closing bell Thursday will also have increased interest given the shakeup in packer activity the last couple of months. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids steady to firm. Slaughter Thursday is expected at 403,000 head. Saturday runs are expected near 161,000 head.

	BULL SIDE		BEAR SIDE
1)	Sharp gains in cash cattle prices through the week point to increased underlying support in the complex as prices have shown increases of $6 to $11 per cwt over last week's average price levels. This momentum continues to build underlying support in the complex.	1)	Sharp triple-digit losses in feeder cattle futures broke away from the previous narrative of expected lighter cattle placements in April. This may lead to additional market volatility through the end of the week as limited confidence is seen around pre-report estimates, especially when it comes to placement numbers.
2)	Retail beef prices appear to be starting to shift higher at retail levels, combined with increased openings of food service locations, the expectation that increased underlying support may develop over the near future could help stimulate additional widespread market gains.	2)	Given the strong cash market support, but limited gains in futures trade, cash basis levels still remain extremely high. The concern that basis levels will eventually move back to normal market levels could create additional market disruptions when this shift develops.
3)	Strong triple-digit gains developed in deferred lean hog futures Wednesday, led by spring 2021 contracts. This continues to focus on the expectation that supply tightness may develop once the industry works through the current glut of market-ready hogs over the upcoming weeks and months.	3)	Firm pressure is seen in pork cutout values and cash hog values midweek, creating concern that further fundamental weakness may occur the rest of the week.
4)	The potential for increased export sales to China in the weekly Export Sales report could help to spark renewed underlying buying in nearby and deferred lean hog contracts.	4)	If China exports and shipments are not seen in Thursday mornings weekly Export Sales report, underlying weakness may quickly develop through nearby lean hog futures trade as the recent momentum and building pace of China business in the market is starting to be an expectation by some.

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

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