DTN Early Word Livestock Comments

Cattle: Steady to Higher Futures: Mixed Live Equiv $131.41 +0.80*

Hogs: Steady to Higher Futures: Mixed Lean Equiv $ 74.55 +0.34**

* 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 trickle in through the end of the week with some trade possibly holding out until after the Cattle on Feed and Cattle Inventory report, which will be released at 2 p.m. central time. Unless a major shakeup is seen in the market, prices are expected to be relatively well established with dressed trade hovering in the $157 to $158 per cwt level, while live trade is seen at $96 per cwt. Prices are generally steady with trade earlier in the week, but steady to $1 per cwt higher than last week's trade levels. But it will be interesting to watch what the weekly weighted average does when released early next week. The ability to hold average prices steady to higher will be a significant determining factor about the ability to potentially set seasonal lows during early July. If the average dips lower than last week, the concern is that additional price pressure may develop not only during late July, but it could extend well into the month of August. This fundamental pressure could derail much of the support in the cattle complex the last three weeks. Futures trade is expected to remain generally weak with traders looking for additional direction going into the report-heavy Friday session. Although both reports released Friday will not be seen until after the markets close, the potential to adjust positions ahead of these reports is likely to spark some market volatility through most of the session. That being said, no major surprises are expected in the Cattle Inventory or Cattle on Feed reports, but the uncertainty following the market shifts and production challenges of 2020 has created the potential for unexpected results. Cattle placement is expected to be at 103.6% year-ago levels, while all cattle on feed is expected nearly steady at 99.9% year-ago levels. Friday's slaughter is expected at 117,000 head.

Lean hog futures continue to be driven by underlying support moving into front-month August futures. Although August contracts have given up the spot of most actively traded contract to the October futures, the focus on sparking renewed interest in the lightly traded August contract has allowed for expanded premiums in the front-month contract. The August to October price spread remains the widest in over a month, as buyers focus on short-term market opportunities. Although not a major driving factor in the price direction, but one of the many considerations is that August futures are in the pricing stage, which will set the daily trading limit for the next year. Daily contract limits for the upcoming year will be set at 4% of the average August contract price during the last 45 days of trade. This includes the majority of July and early August. The most active trade remains focused on October futures, which have been able to move above the $50 per cwt threshold. The focus on firmness in pork prices and higher cash values is adding even more support, but still unable to bring active renewed buying to the market, limiting the upward potential of the market. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Friday is expected at 473,000 head. Saturday runs are expected at 232,000 head.

	BULL SIDE		BEAR SIDE
1)	Firmness developing in beef cutout values at the end of the week is pointing to underlying market stability and potentially posting seasonal lows. If choice beef cutouts can end the week steady to higher, the likelihood of a change in the trend of beef markets is even greater, pointing to potential further support through the remainder of the summer.	1)	Strong pressure in all cattle trade Thursday created concern that the recent market support may be limited as traders focus on strong underlying cattle supplies, especially ahead of the Cattle on Feed report.
2)	Steady-to-higher cash cattle trade compared to last week is expected to bring about increased market firmness through the end of July. Packers continue to remain active buyers, although success in cash markets seem to be measured in small moves rather than wide price swings.	2)	Concerns about further labor issues at packing plants over the coming weeks and months is sparking concern that another round of production uncertainty may develop before the end of the year. This could have drastic implications to cattle prices, which have started to recover over the past couple of months.
3)	Sharp triple-digit gains in front-month August contracts has helped to stimulate additional buyer support through most of the complex. This has pushed the front-month contract to nearly $55 per cwt, holding one-month highs and breaking through short-term resistance levels.	3)	Volatility in pork cutout values over the past couple of weeks has sent mixed messages about the ability to spark long-term and renewed support back into the market. This may add some increased weakness through entire lean hog complex over the next several weeks.
4)	Firm support continues to develop in cash hog trade with the national Direct hog report posting another 62 cent per cwt gain Thursday. This moved prices to $36.01 per cwt as packer interest remains strong during late July.	4)	Growing tensions with China are being closely watched. Given the need for strong export sales to China in order to keep up with pork production, any negative discussion between the two countries is likely to impact hog price levels.

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

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