DTN Early Word Livestock Comments

Cattle: Steady to Lower Futures: Mixed Live Equiv $161.66 -6.46*

Hogs: Lower Futures: Mixed Lean Equiv $ 75.85 -1.90**

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

General Comments:

Limited cash cattle trade developed Monday with a few cattle selling on a dressed basis in the North at $170 per cwt. The overall movement of sales this early in the week is not enough to hang your hat on and establish a market trend. But with lower money than last week, and confirmation Monday that the overall cash price average fell $3.32 per cwt from the previous week, the overall trend of the market appears to be weakening through the month of June. Additional activity is expected over the next few days, but as beef values come back in line with historical levels, it is likely that a portion of the cash market premium will evaporate also over the coming days and weeks. Boxed beef values continue to steadily tumble lower with select cuts leading the shift lower with a $15.30 per cwt loss. This now puts beef values to prices last seen in the third week of April. Although prices are not yet back to pre-COVID levels, at this rate it will only take days to get there. The main question is will the previous threshold near $220 per cwt in choice cuts be able to hold given the volatility in the beef market over the last couple of months. Futures trade is expected to remain mixed in limited activity. The concern that additional pressure is likely to be in cash and wholesale beef values is limiting overall consistent support through the complex. Even though recent buying support is seen in nearby contracts, the significant discount in lightly traded June contracts is focusing on the continued short-term supply of cattle still in the pipeline. This may limit consistent aggressive buyer support through the near future, although with current price levels, there still remains limited downside market pressure in the cattle complex. Tuesday slaughter is expected at 118,000 head.

Continued concerns of where the growing supplies of pork will go given that retail and food service demand still remains under pressure is likely to limit short-term buyer support in the near future. July lean hog futures are establishing themselves at the table of the spot month contract as active liquidation in lightly traded June futures prepares for the contract to ride off into the sunset. Although July contracts remain $3 per cwt above long-term support levels set in April, the concern that further market erosion over the coming weeks due to pork demand weakness could test these long-term lows. A move below $50.97 per cwt in July futures would likely spark additional bearish liquidation through the complex, ending the renewed support of open interest that has recently stepped back into the complex. Firm gains expected to slowly redevelop in late fall and winter contracts as traders focus on lower production levels the long-term, following the financial crisis in the hog industry over the last couple of months. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids steady to $1 lower. Slaughter Tuesday is expected at 448,000 head.

	BULL SIDE		BEAR SIDE
1)	August live cattle futures continue to steadily hover above the 40 day moving average of $94.93 per cwt. This continues to focus on underlying buyer support developing as traders move past long-term lows set in April. This could help to sustain market stability through most of the summer months.	1)	Continued pressure in beef values has created questions just how much lower prices will move. Given the downward price momentum and concern about overall beef demand, it is uncertain if prices will stabilize in the near future and at prices seen in early April.
2)	Cattle slaughter numbers continue to slowly increase on a daily basis. This is helping to offset fears that additional disruptions may develop through the summer. With levels close to year-ago levels, the focus of limited beef supplies is eroding.	2)	Despite limited numbers of cash cattle selling, prices were weaker compared to last week's levels. The falling beef values and continued aggressive premium to futures trade could continue to cause erosion to cash cattle values through the month of June.
3)	Firm gains in deferred lean hog futures are starting to focus on long-term support rebuilding through the complex. This may add increased buyer support and help to expand premiums seen in early 2021 contracts.	3)	Firm pressure continues to work through wholesale pork cutout values, creating concern that even though increased processing levels are seen, the ability to clear pork through the system remains limited due to sluggish overall demand.
4)	Packing plant numbers continue to steadily and aggressively move higher each day. This is expected to limit the backlog of market-ready hogs available to packers, although it will still take a while to work through the abundance of hogs available.	4)	Cash hog prices continue to erode as packers have ample hogs available at their disposal at this point, and this is not expected to change in the near future.

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

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