DTN Early Word Livestock Comments

Limited Buyer Support Expected Following Pressure Late Last Week

Rick Kment
By  Rick Kment , DTN Analyst

Cattle: Steady Futures: Mixed Live Equiv $168.13 -7.53*

Hogs: Lower Futures: Mixed Lean Equiv $ 77.75 -2.14**

* 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 market trade is expected to remain sluggish Monday morning, although the trend of daily trade developing through the week over the past several weeks is not ruling out any cash sales by the end of the day. Morning activity will be focused on showlist distribution and inventory taking as both sides wait for confirmation of a market average from last week. Wide trading ranges once again developed last week. Even though price ranges were wide, markets eroded as the week continued last week. If prices start out where they left off Friday, the significant premium held by cash market trade over the last two months will quickly evaporate, creating additional concern of cash basis levels returning to more traditional levels of $2 to $4 per cwt above futures prices. Sharp losses in boxed beef values continue with cutout values falling $70.40 and $76.14 per cwt in respective choice and select markets last week. This has eroded the bulk of the rally during April and May, and could lead to even lower price levels in the coming days. Currently choice boxed beef cuts are priced nearly $40 per cwt above April 8 price levels (before the plant closure price surges started) and given the recent weakness, these price spreads could be evaporated in a matter of days. As plant production is moving back closer to pre-coronavirus levels, the focus on sustaining and rebuilding beef demand given food service demand is still struggling and retail consumers are still grappling with higher retail price levels. Monday slaughter is expected at 117,000 head.

Strong support in outside markets going into Monday's trading session is expected to help limit follow-through selling. This could lead to additional stability during the week as the livestock and meat industry returns to a more normal level. Plant production levels continue to steadily increase with additional focus on moving hogs through the system into the retail and food service industries. The growing questions in the coming days and months is if pork demand will be able to rebound quickly in order to not build a glut of pork in storage over the next several weeks. Food service remains well below pre-virus levels with some still closed, and many still not having full menus or maintaining normal business hours. Retail buying seems to have slowed significantly with retail prices still high based on previous gains in pork cutout values. This will continue to leave a backlash of price moves over the near future as wholesale and cash prices still remain under pressure during early June. The ability to hold July contracts at or near $55 per cwt through the upcoming days will be huge in helping to sustain buyer support during the month of June. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids steady to $1 lower. Slaughter Monday is expected at 439,000 head.

BULL SIDE BEAR SIDE
1) As boxed beef prices move back to a more normal price range additional consumer buying is expected as retail prices start to significantly fall. 1) Sharp losses in beef cutout values continue. Last week, significant losses developed in choice and select cuts, falling $76.14 and $70.40 per cwt respectively during the week. Further price reductions are likely during the upcoming days as supplies start to increase.
2)

Cattle slaughter levels are steadily increasing on a daily basis with early-week output by packers expected to be within 1,000 to 3,000 head, less than year-ago levels. This has been an incredible recovery over the past few weeks, as schedules return to a more normal pattern.

2)

The wide range of cash cattle trade reported last week, and fact that prices steadily eroded as the week progressed points to the potential that any early-week cash trade may be near last week's lows. This could add further market pressure to futures and cash markets.

3)

Hog slaughter has steadily increased the past couple of weeks as packers continue getting back to more normal levels. This could continue to slowly improve over the next couple of weeks, cutting into the glut of market-ready hogs available to the industry.

3)

Cash hog values continue to steadily shift lower through the end of last week. Friday the national weighted average price was listed at $32.14 per cwt, down $0.83 from the previous day. Despite gains in futures prices, packers have abundant access to market-ready hogs.

4)

Firm triple-digit gains have steadily moved into deferred lean hog trade late last week. This continues to add support to long-term price support as traders expect hog numbers to tighten as the year continues.

4)

Struggling pork demand from domestic and export markets continues to be a growing concern through the industry. This may continue to add increased pressure through the entire complex through most of the summer months.

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

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Rick Kment