DTN Early Word Livestock Comments

Stability in Live Cattle Futures Likely Friday

Rick Kment
By  Rick Kment , DTN Analyst

Cattle: Lower Futures: Mixed Live Equiv $151.70 -0.83*

Hogs: Lower Futures: Mixed Lean Equiv $ 74.43 +0.62**

* 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 has turned into another week of light trade that developed through the entire week. Although daily price moves seem to have a slightly narrower trading range than in past weeks, the continued erosion in prices as the week continues points to steady market losses and the expectation that further pressure may develop Friday. Cash trade on Thursday was $103 to $107 live basis and $162 to $165 dressed. The steady shift lower will continue to leave uncertainty of where the market average price will land, which will not be seen until early next week. The recent pullback in wholesale beef values is expected to limit any upward movement in the cash trade, but it is still uncertain just how many cattle packers need to gain access to Friday, as most of the short-term needs may be already met. The shift lower in cash prices, while futures markets have remained generally stable for the week is eroding the strong cash basis levels that has held for weeks, but appears to be moving back to a more normal seasonal relationship. Futures trade is expected mixed in limited trade Friday morning. With spot August futures narrowing the recent losses as prices have fallen just 25 cents for the week, the focus on market stability at current price levels is gaining momentum and helping to draw light-to-moderate support back to the complex at the end of the week. Friday slaughter is expected at 116,000 head.

Growing uncertainty of pork demand growth over the next couple of months continues to limit market support through the entire complex. With Thursday's weekly Export Sales report showing lackluster activity the first week of June, traders seem to be resigned to the fact that sluggish overall movement, especially in export markets may be the trend over the summer months. Continued concerns of limited consumer buying and limited food service demand even as the economy slowly opens back is adding uncertainty to how much additional support can or will develop in nearby lean hog futures over the near future. July futures continue to hold above long-term lows, with no significant indication that the support levels in April will be tested. But the focus on growing slaughter rates and uncertain beef demand could continue to keep prices just slightly above support levels for an extended period of time. Cash hog bids are expected $1 lower to 50 cents higher per cwt higher with most bids steady to weak. Slaughter Friday is expected at 452,000 head. Saturday runs are expected at 225,000 head.

BULL SIDE BEAR SIDE
1)

Boxed beef values have started to stabilize. Although prices continue to show slight weakness at the end of the week, Thursday's losses were the lightest market pressure in a month since beef prices have moved from historic highs.

1)

Sharp losses of 1,800 points in the Dow Jones Index on Thursday is creating significant underlying concerns that the recent market recovery may not be as quick as some have perceived. This could have significant impact in further buyer support in cattle futures and demand for beef products.

2)

Gains in open interest have developed in the last couple of weeks, creating the expectation that further buyer interest is slowly moving back into the cattle complex, looking for long-term market support.

2)

Cash cattle prices continue to steadily erode each day through the week, leaving a wide trading range for the week, and establishing a weaker market structure.

3)

Pork cutout values inched higher Thursday. This break from strong market pressure over the last couple of weeks is creating indications of further short-term support developing in the near future.

3)

With July lean hog futures hovering at $52 per cwt, prices are within $1.40 per cwt of long-term support levels during early April. A move to these levels would likely spark renewed liquidation based on concerns of pork demand growth.

4)

Active plant slaughter gains through the week is expected to account for the largest weekly kill in nearly two months. This continues to focus on the ability to steadily work through the current backlog of market-ready hogs in the market.

4)

Even though packing plant production has made significant progress to increase slaughter numbers over the last few weeks, it is uncertain just how many additional gains can be seen over the near future given the safety precautions put into place. This could cap short-term daily production levels near 460,000 head for much of the summer, leaving the industry struggling to regain market currency.

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

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Rick Kment