DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv $175.66 -13.06*

Hogs: Lower Futures: Mixed Lean Equiv $ 79.89 - 0.16**

* 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 prices have continued to erode through the week as the lower boxed beef prices are having more impact in overall packer willingness to offer steady money. An extremely wide trading range continues during the week with dressed cattle ranging from $170 to $187 per cwt, with live cattle trade from $105 to $118 per cwt. Any additional trade on Friday will likely show up in the lower end of the weekly trading range and could skew the overall average price levels, depending on just how many additional cattle are purchased at the end of the week. Given the expectation that wholesale beef values will continue to tumble lower in the near future, feeders are likely not going to become focused about holding out for higher money given the expected trend that cash value bids may be even lower next week. Futures trade is expected mixed but sluggish early Friday morning. The overall lack of support in futures or wholesale beef prices once again is likely to limit the upside market potential. But with futures trade at a significant discount, there is also limited downside potential in the complex, which has continued to spark renewed buyer support during early June. This could help to instill moderate to firm end of the week gains in live cattle and feeder cattle trade as volume increases Friday. Friday slaughter is expected at 113,000 head.

With the majority of the packer production problems expected to be behind the industry, the focus on regaining support and supplying the world with high quality pork supplies is sparking some underlying support through the complex. Lightly traded June contracts continue to show limited support, being the only contract trading under $50 per cwt, but the focus on the potential for July and August contracts to gain additional ground is helping to not only firm fundamental support but also could lead to technical buying through the upcoming days. The lean hog industry still remains well entrenched within the wide trading range established over the last two months, with many traders expecting this range to hold through most of the summer. But increased focus on firming pork values and gaining market share in the meat industry based on the elevated beef values is likely to limit further widespread losses in the lean hog complex. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids steady to $1 lower. Slaughter Friday is expected at 434,000 head. Saturday runs are expected at 338,000 head.

	BULL SIDE		BEAR SIDE
1)	Firm underlying support is seen in feeder cattle trade through the last half of the week. The potential to test short-term resistance levels in the upcoming days of $136.12 per cwt in August contracts could spark renewed buying through the month of June.	1)	Sharp double-digit losses have once again moved through wholesale beef values. This not only is sparking significant losses in beef prices, but also quickly eroded the live cattle equivalent, and likely will have trickle down impact on future cash cattle prices.
2)	Firm growth in open interest has continued to develop in live cattle trade during the first week of June. This is putting the focus on additional trade interest returning to the cattle complex as traders focus on potential stability and long-term gains possible in the near future.	2)	Cash cattle trade continues to erode as the week continues as packers still may be buying larger numbers of cattle, but with falling beef prices, bids are quickly eroding.
3)	With hog slaughter numbers steadily increasing, the overall focus on more stable pork supplies and the ability to limit the backlog of market-ready hogs has helped to bring buyer support to futures. This could continue to instill buying over the near future.	3)	Cash hog prices have eroded through the end of the week based on limited additional buying as packers gain access to more hogs through early June.
4)	The strong gains in outside markets over the recent days, especially in stock markets has helped to bring additional underlying support through most lean hog futures contracts, with deferred contracts showing the most support based on expected long-term buying.	4)	As pork packing plants return to a more normal routine, the concern of what to do with the additional pork supplies is likely to become a significant issue. With food service demand still limited due to limited menus and reduced seating capacity in many areas, the focus on sluggish pork value prices could limit upside potential in lean hog prices.

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

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