DTN Early Word Livestock Comments

Cattle: Steady to Lower Futures: Higher Live Equiv $188.72 -12.11*

Hogs: Lower Futures: Mixed Lean Equiv $ 80.05 +0.64**

* 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 continues to trickle into the market through the week with at least some trade developing each day this week. The "dribs and drabs" style the market has taken on the last couple of weeks is unusual, but starting to become a familiar pattern. It is uncertain if this will continue once packers get into a more stable rhythm as they keep production levels elevated post-COVID-19, but for now, larger amounts of cattle are purchased in the negotiated cash cattle trade, leading to activity through the entire week. Prices are generally steady with last week's weighted average price levels, but have fallen $1 per cwt from where most of the trade was reported on Monday. The biggest change this week in the cash cattle trade from previous weeks is that the overall trading range of cattle reported sold is much narrower than during most of May. This will help to create a better idea where the market will end up by late Thursday or Friday, rather than having to wait for final numbers on Monday. Continued strong pressure in boxed beef values is likely to continue as the focus on increased slaughter levels combined with the sharply higher retail prices limiting overall beef disappearance. This could subdue overall beef demand long after prices move back to a normal pattern, and given the continued double-digit losses, this could only take days. Futures trade is likely to remain subdued early Thursday morning with increased underlying follow-through support likely to develop across the complex. This may not add significant price support through the end of the week, but the ability to add a sense of stability to nearby and deferred futures trade while wholesale beef prices continue to tumble lower would help to instill more widespread confidence through the complex. Thursday slaughter is expected at 115,000 head.

Expanded trading limits are available in lean hog futures trade Thursday morning, following limit losses of $3.75 per cwt in lightly traded June contracts. Although the June contracts remain sluggish and active trade is already shifted to July through October contracts, limit moves in just one contract is enough to spark expanded trading limits. The lean hog market has continued to see a split personality with nearby weakness being offset by limited to moderate support longer term. This is expected to once again be the case with traders looking for the potential to regain buyer support in late 2020 and early 2021 contracts once the production glut works through the system and tighter supplies are expected. But for now, there still continues to be ample hogs available for processing, and packers seem to be reaching a sustainable threshold of 430,000 head per day. The fact that average hog weights have not moved higher over the last several weeks as most have expected is somewhat confusing but is starting to indicate that the market remains more current than previously expected, at least for the time being. There still remains growing concern about short-term pork demand, with the weekly export sales report Thursday morning helping to shine light on product movements to China. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids steady to $1 lower. Slaughter Thursday is expected at 428,000 head. Saturday runs are expected at 327,000 head.

	BULL SIDE		BEAR SIDE
1)	Cash cattle trade continues to slowly develop through the week. Prices midweek are generally steady with last week's average prices, and given the turn lower in beef values, steady money seems to be a good sign.	1)	Sharp double-digit losses have once again moved through wholesale beef values. This not only is sparking significant losses in beef prices but is also eroding the live cattle equivalent and likely will have trickle down impact on future cash cattle prices.
2)	Increased packing plant levels continue to focus on regaining a sense of normalcy following the challenges in April and early May. Slow but steady gains continue to develop in daily slaughter rates, helping to offset concerns of scarce meat supplies.	2)	Nearby live cattle futures have tumbled nearly $5 per cwt over the last week. The inability to hold recent gains and keep prices above the $100 per cwt level in nearby contracts is creating additional concern of further market losses.
3)	Firm buyer support in deferred lean hog futures trade through early June is helping to spark some underlying activity as traders slowly trickle back into the lean hog complex, focusing more on long-term direction, rather than short-term market shifts.	3)	Nearby live cattle futures have tumbled nearly $5 per cwt over the last week. The inability to hold recent gains and keep prices above the $100 per cwt level in nearby contracts is creating additional concern of further market losses.
4)	Wholesale pork cutout value bounced slightly higher midweek. Although the gains themselves are not greatly significant, the ability to break away from the price weakness in beef values, and build some market price stability could help to regain additional support over the near future.	4)	The weekly Export Sales report will be released Thursday morning, creating concerns that additional sluggish pork sales may be seen to China. The continued concerns of China's ability to remain active in the market over the coming weeks is sparking underlying weakness through nearby contracts.

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

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