DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv $152.53 -5.47*

Hogs: Lower Futures: Mixed Lean Equiv $ 73.81 -0.42**

* 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 continue to weaken this week. This could lead to additional underlying pressure through not only the cash cattle market, but the entire cattle complex. Cash cattle trade Wednesday was reported as light with most northern dressed cattle selling at $172 per cwt, while live cattle in the South sold at mostly $108 per cwt. These prices are generally $4 to $8 per cwt lower than last week, but the fact that wide price ranges are developing in all areas gives less confidence of where the average market price will be through the end of the week. For example, Texas trade was reported anywhere from $98 to $108, creating some concern that if further pressure develops in beef values or cattle futures, further price losses will develop before the end of the week. Boxed beef values continue to quickly erode, moving back to pre-COVID price ranges. The Livestock Equivalent currently holds at $152.53 per cwt, falling below the April 1 level of $153.54 per cwt. Compared to year-ago levels, the current livestock equivalent is about $8 per cwt higher than levels in the second week of June 2019. The concern of weak beef demand and current momentum with boxed beef prices tumbling lower could cause overall wholesale prices and livestock equivalent levels to move well below spring levels, causing additional concerns. Futures trade has continued to hover with in a $2 per cwt trading range through most of June. Further significant pressure would break out of this range, leaving traders concerned about technical pressure developing in the coming days. Thursday slaughter is expected at 117,000 head.

Firm midweek pressure in lean hog futures trade is due to strong triple-digit losses in deferred contracts. Traders remain concerned about the ability to increase pork demand in domestic and export markets through the end of 2020 and early 2021. Although lighter overall slaughter numbers last week brings about significant questions if the market is as backed up as currently thought, the fact that ample hogs are available for packers needs, and the recent shift in pork prices, has created weaker demand. Although food service and restaurant demand is starting to slowly improve as more locations open back up, the outlook for the summer months still remains bleak given that activity levels are far from normal. Futures trade is expected to remain mixed in limited early trade, although the underlying weakness in the complex is expected to limit upside market direction Thursday morning. Cash hog bids are expected $1 lower to 50 cents higher per cwt higher with most bids steady to 50 cents lower. Slaughter Thursday is expected at 454,000 head. Saturday runs are expected at 225,000 head.

	BULL SIDE		BEAR SIDE
1)	Long-term supply tightness in the cattle market is still expected through the fall and winter months when it is likely that the industry will fully work out of the backlog of cattle seen over the last couple of months. This could create strong price moves during the last quarter of the year based on the limited supplies of market-ready cattle.	1)	Continued steady pressure in wholesale beef values is erasing most of the previous gains over the last two months. Given the demand destruction seen this year, it is likely that prices will continue to fall through the upcoming days and weeks.
2)	As wholesale beef values return to a more normal price level, it is likely that consumers will actively step back into the market once retail levels move back to pre-COVID levels. The perception that "normal" beef price levels is at bargain prices given the discount from recent gains could stimulate active retail buying.	2)	Cash cattle markets have started to tumble lower with prices showing significant pressure from last week's levels. This could continue to erode basis levels, with cash prices likely to readjust closer to the futures market levels.
3)	Traders are looking forward to the weekly Export Sales report Thursday morning. Any sense of strong buying from China in the report is expected to bring about limited but supportive buying.	3)	Lack of strong export sales to China in Thursday morning's report will likely spark additional underlying market weakness in all futures trade. This would likely put the focus on nearby summer contracts, as the concern of July futures moving below $50 per cwt could become a reality.
4)	Average hog slaughter weights last week fell 3.3 pounds per hog from the previous week. This is indicating that the market is not as backed up as currently thought, and could help to limit further market losses during the remainder of the summer.	4)	Despite the growth in slaughter numbers, packers continue to have access to large amounts of market-ready hogs. This has continued to limit cash prices, and this weak cash market may continue over the near future.

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

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