DTN Early Word Livestock Comments

Hog Traders Adjust For Upcoming Hogs and Pigs Report

Rick Kment
By  Rick Kment , DTN Analyst

Cattle: Steady With Early Week Trade Futures: Mixed Live Equiv $137.20 -1.27*

Hogs: Lower Futures: Lower Lean Equiv $72.63 +4.50**

* 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 became more active Wednesday afternoon with light to moderate activity seen in most areas. Trade in the South was reported at $95 to $97 per cwt live basis, generally $4 per cwt lower than last week's average, Trade across the North on a dressed basis was reported at $155 to $156 per cwt, steady to $1 higher than Tuesday's activity, but still about $5 per cwt lower than last week. The extremely wide basis premiums which we have talked about over the last three months have essentially evaporated with current cash prices eliminating a cash market premium. This brings the cash market into a more traditional level with August futures trade, but still does not bode well for market direction in the near future as the backlog of cattle still remains very evident in all sectors of the industry. Futures trade is expected to remain mixed Thursday morning. Although most of the report focus will be centered on the hogs and pigs report, the livestock slaughter report will help to confirm the increased overall movement of cattle through the month of May, leading to the current market situation. Thursday slaughter is expected at 121,000 head.

Lean hog futures are expected to trade under pressure most of the day Thursday as the main focus. As far as reports go, focus will be on the quarterly Hogs and Pigs report. This is likely to be the most anticipated hogs and pigs report in many years, as this will give the best indication of overall hog numbers following the coronavirus shutdown, as well as weight ranges of market hogs. Although overall hog numbers are expected to be seen larger than last year, the amount of hogs kept for breeding is expected to have fallen significantly, creating the expectation of tighter supplies during 2021. Generally market pressure is likely to be seen through most of the morning, although a bullish weekly export sales report and sales to China last week could help to calm the market weakness just a bit. Cash hog prices are expected $1 lower to 50 cents higher with most bids expected steady to weak. Slaughter Thursday is expected at 475,000 head. Saturday runs are expected at 309,000 head.

BULL SIDE BEAR SIDE
1)

Firm buyer support has developed in deferred feeder cattle contracts through the week. This has expanded the premium over spot month contracts to $3.40 per cwt as traders focus on tighter supplies through the end of the year.

1)

The strong basis levels in cash cattle market seen through most of the spring and early summer have evaporated following the aggressive tumble in cash market prices over the last month. This is likely to limit additional weakness through the entire complex through most of the summer.

2)

Continued pressure in wholesale beef values are expected to quickly be worked through the retail industry over the near future. This could help to stimulate additional retail demand and inventory building by consumers as they take advantage of the significantly lower prices.

2)

Spot live cattle futures are holding just slightly above technical support levels of $95.12 per cwt. Continued pressure through the rest of the week, testing these levels could signal a move to the low $90s creating additional long term pressure, especially given the weakness in beef values and cash markets.

3)

Expectations of long-term market support through late 2020 and early 2021 is likely to help build buyer support at current price levels.

3)

Increased hog numbers are expected to be seen in the afternoon hogs and pigs report. This is likely to keep markets under pressure through most of the morning.

4)

Significant changes are expected to be seen in hogs kept for breeding and adjustments made to farrowing intentions through the end of the year and early 2021. This is expected to show the indication of long-term bullishness based on a contracting pork production system due to current price levels.

4)

Uncertainty about developing trade and deliveries to China will be closely watched in the morning export sales report. Limited weekly sales to China could spark additional weakness in nearby futures trade during the morning.

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Rick Kment