DTN Early Word Livestock Comments

Growing Coronavirus Concerns Create Uneasy Market Structure

Rick Kment
By  Rick Kment , DTN Analyst

Cattle: Steady Futures: Mixed Live Equiv $131.42 +0.80*

Hogs: Steady to Higher Futures: Mixed Lean Equiv $ 73.32 -2.75**

* 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 markets remain generally quiet Tuesday morning following sluggish movement at generally steady price levels in the North Monday. Just a few deals were reported in Nebraska at $157 per cwt. It is too early and not enough trade to establish a market trend for the week, but the firm pressure in futures seems to not have a significant impact on overall cash prices at this point. Bids are likely to become more active over the next couple of days, although it may be late in the week until active cash cattle trade is seen. The 5-Area weekly average price last week increased 38 cents from the previous week with average prices listed at $96.36 per cwt. Although prices were steady to higher in all areas except Iowa, the overall lack of support in the cash market is generally disappointing given last week's surge in futures trade. But the point that cash market prices may have set seasonal lows will be closely watched over the next couple of weeks, potentially sparking some underlying support in the complex. Mixed trade is likely early Tuesday morning as traders backed away from early Monday lows as the session continued, but the overall lack of buyer support in all cattle trade Monday seems to be adding some underlying concern to the complex. The bulk of last week's market rally remains intact, creating the potential for follow-through buying to step back into the market once traders have adequately adjusted positions. But this has continued to put most attention on front-month August contracts, although the majority of trade has moved to fall contract months in live cattle and feeder cattle futures. Tuesday's slaughter is expected at 120,000 head.

August futures have continued to lead the lean hog futures market lower Monday. With prices moving back just above $50 per cwt in spot month contracts, and October futures falling below the $50 per cwt threshold, the previous optimism about breaking out of the weaker market trend seems to be fading. As pork values bounce higher and lower with triple-digit market moves, the concern that additional market shifts and generally bearish pork demand expectations could leave prices hovering near support levels through the rest of the summer. Hog slaughter levels have continued to stabilize, helping to work through the glut of hogs available to the market. But this still leaves large supply levels available through the next couple of months with growing pork demand uncertainty. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Tuesday is expected at 475,000 head.

BULL SIDE BEAR SIDE
1)

Cash cattle prices last week were steady to higher in all areas except Iowa. Although gains remained slight in most areas, the potential to continue to slowly push prices higher from summer lows is helping to bring about increased buying.

1)

Continued pressure in boxed beef values over the last few days has created concerns that last week's rally in futures may not be able to be sustained long term. The inability to push beef values higher continues to focus on the concerns of consumer demand and food service activity in the coming weeks.

2)

Cattle futures in live cattle and feeder cattle markets continue to focus on highs set last week. This could keep prices in the upper end of the market range, potentially sparking follow-through gains through the end of July.

2)

Early-week pressure on Monday in live cattle and feeder cattle trade points to the volatility in the market. This market instability could leave prices moving in a moderate-to-wide range through the upcoming days and weeks.

3)

Active packer movement continues to as plants try to focus on daily slaughter levels near 475,000 head. The ability to keep chain speeds moving at an active level will help to further limit the backlog over the last several months.

3)

Strong pressure developed in pork cutout values Monday. This lack of support continues to draw attention to the growing amount of pork available on the market as more hogs move through packing plants every day.

4)

Strong price premiums are still seen in summer 2021 contract months. With June futures now trading $25 per cwt above nearby contracts, the focus on supply pressure is expected to ease going into next year.

4)

October lean hog futures remains the most actively traded contract in the lean hog complex. With prices moving below $50 per cwt once again Monday, additional concerns surrounding the ability to break out of the current price range and keep prices depressed is limiting buyer support.

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

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Rick Kment