DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv $134.14 -0.44*

Hogs: Steady Futures: Mixed Lean Equiv $ 69.20 -2.15**

* 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 is expected to remain quiet early Tuesday morning with the focus moving back to a more typical trading pattern seen before the packer reductions caused by COVID-19. There is still an opportunity for trade this week. Given the recent discount in cash markets to the futures trade, it appears that packers are much less aggressive to secure cattle early in the week with the expectation that there are plenty of cattle available as the backlog of market-ready cattle remains a significant factor through the next couple of months. With last week's average cash cattle price falling to $94.87 per cwt, $1.24 per cwt lower than the previous week, the continued weakness in cash cattle prices remains evident despite the rally in futures trade. Although fundamentally speaking, it is hard to argue that cash cattle prices have reached the bottom, the strong support developing in futures trade is pointing to some expectations that cash cattle markets may be supported by the end of the week. With cash basis levels moving to significant negative levels to spot live cattle futures after holding near historic highs through the spring months, the abrupt shift in the futures and cash cattle market prices is creating even more instability. Live cattle futures held above $100 per cwt in all contract months Monday, but the inability to hold early gains is adding a hint of insecurity in the complex that recent gains will be able to be sustained over the near future. Tuesday's slaughter is expected at 121,000 head.

Nearby lean hog futures are expected to trade in a narrowly mixed range early Tuesday morning with widespread follow-through support during the first day of the week, leading to spillover buying in several contracts, while limited but noticeable selling pressure could develop across the complex in July and August futures trade. Nearby lean hog futures continue to struggle with the large backlog of market-ready hogs available to packers, and the inability to consistently push wholesale pork prices higher during the month of July. This could add further uncertainty as nearby contracts focus on defending long-term support levels over the coming days. Cash hog prices are expected $1 lower to 50 cents higher with most bids expected steady. Slaughter Tuesday is expected at 471,000 head.

	BULL SIDE		BEAR SIDE
1)	Live cattle futures are trading at multiweek highs as underlying technical support is steadily moving into the complex. Given the focus on significantly tighter cattle and beef supplies through the end of the year, the downside pressure in futures trade is likely to be limited in the near future.	1)	Boxed beef values continue to struggle to find stable footing during early July. Coming off the Fourth of July holiday weekend, additional concerns of further beef price weakness due to demand uncertainty continues to keep wholesale prices weak.
2)	Average cattle weights are starting to ease from recent highs. This is indicating that the market is becoming more current. Although weights are still well above year-ago levels, the trend for lower weights heading into the dead of summer is indicating that the market is moving in the right direction.	2)	Cash cattle prices continue to struggle, as basis levels have continued to erode the past few weeks. The abundant supply of cattle available to packers has put most pressure on cash values even though packer production has moved back to more normal levels.
3)	Lean hog traders continue to focus on the ability to price premium levels into long-term production schedules. Summer 2021 contracts have increased premium levels to $32 per cwt over front-month July futures contracts. This focus does little to ease the current pain of immediate market status but creates hope that there is a light at the end of the tunnel.	3)	Despite the price support in futures trade over the last couple of days, the lean hog futures complex remains vulnerable from a technical standpoint. This could quickly test long-term support levels in nearby contracts, reversing recent market support, which has moved into the complex.
4)	August lean hog futures continue to defend long-term support levels during early July. The ability to hold prices above $48.12 per cwt through the next couple of weeks is expected to be a significant technical victory and likely will spark additional buyer support over the near future.	4)	Cash hog values remain generally stable during early July, limiting underlying support as packers have little incentive to bid significantly higher prices as they are gaining access to adequate numbers of market-ready hogs despite aggressive slaughter schedules for the week.

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