DTN Early Word Livestock Comments

Cattle: Steady Futures: Lower Live Equiv $200.83 -15.09*

Hogs: Lower Futures: Mixed Lean Equiv $79.41 -6.67**

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

General Comments:

Wholesale beef values are in "free-fall mode" with choice prices falling $45 per cwt in the last two days of trade. This is moving prices back to pre-coronavirus levels as packer capacity continues to return to a more-normal pattern and less focus on tight beef supplies to consumers will allow for further meat price reductions. The fact that retail ground beef values have more than doubled in the last month appears to have had a significant impact on consumer buying patterns, as the food service industry has still not recovered from the closures seen over the last couple of months. This could bring beef values lower much quicker than previously expected, especially if demand dries up at recent retail price levels. Cash cattle continue to trade within last week's range, but the fact that prices are quickly eroding with the rest of the market is causing some significant concern and could lead to weaker prices through the rest of the week. Moderate trade is still expected through the rest of the week, but the fact that prices may not be able to test early week highs or even get near last week's average price once all trade is finished is disappointing, and could lead to additional cash market pressure through June. Futures are likely to remain lightly traded early in the session, although the limit losses in June futures will allow for expanded trading limits through the complex. Even though August contracts remain the most active trade, June futures hitting limit losses at the end of Tuesday is more significant than the actual amount of trade in the contract month at this point. Cash cattle basis levels still remain extremely elevated, which has become the pattern through the spring and summer months. But this is a significant change from traditional basis levels, and at some point is likely to see a correction. Wednesday slaughter is expected at 115,000 head.

Mixed trade continues in lean hog futures with Wednesday expected to be no exception. This overall lack of support in nearby contracts continues to focus on the underlying weakness in pork values, while needed stability is attempting to hold in deferred contract months. The expectation is that summer lean hog contracts and overall cash values will continue to see the brunt of the pressure due to a backlog of hogs in the system and limited consumer demand due to food service closures and higher pork prices. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids steady to $1 lower. Slaughter Wednesday is expected at 418,000 head. Saturday runs are expected at 327,000 head.

	BULL SIDE		BEAR SIDE
1)	Strong cash cattle trade continues with active numbers of negotiated trade expected again this week. The need for packers to gain access to short-term supplies to fill procurement needs could continue to spark buyer interest.	1)	Limit losses in lightly traded June live cattle futures sparked growing concern that the recent market gains could quickly evaporate due to the wholesale beef value correction developing during early June.
2)	Active price support is seen in cash feeder cattle trade in most areas of the country with growing interest from feeders in gaining access to calves and yearlings. This could help to offset futures pressure as the week continues.	2)	Boxed beef values have posted aggressive losses over the last two days. The expectation that recent price levels are not sustainable is clear, but it still remains very painful for prices to retreat lower this quickly, sparking widespread weakness through the entire complex.
3)	Firm cash market support developed Tuesday, flying in the face of lower pork values and tumbling futures trade. The focus on packers needing and gaining access to increased daily numbers of negotiated hogs is likely to spark underlying support through the upcoming days.	3)	Nearby lean hog futures have posted strong losses during early June, falling $4.45 per cwt in the past two trading sessions. This shift lower continues to put focus on further market weakness in the near future as prices continue to have little support within the wide trading range established over the last two months. June futures could fall another $8 to $9 per cwt without any significant technical resistance.
4)	Deferred lean hog futures trade continues to hold previous support levels, with increased buying interest moving into late 2020 and most 2021 contracts. The increased open interest in most lean hog contracts is helping put the focus on renewed long-term market support, as the industry moves past recent challenges associated with coronavirus.	4)	Sharp losses in pork cutout values are causing concern about the ability to move current pork supplies now that retail and food service prices have surged higher and more product is available to consumers. This could create additional pressure in wholesale and retail price levels during early June.

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

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