DTN Early Word Livestock Comments

Cattle: Steady to Higher Futures: Higher Live Equiv $136.06 +0.63*

Hogs: Higher Futures: Mixed Lean Equiv $ 77.53 +2.06**

* 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 appears to have turned a bullish corner midweek with increased price levels developing in all areas. The Fed Cattle Exchange posted limited volume and sales Wednesday morning, but the fact that prices moved $3 to $4 per cwt higher on cattle that sold seemed to set the tone for the rest of cattle markets, which developed later in the day. Cash cattle trade developed from $104 to $105 per cwt on a live basis in both the North and South and $165 dressed basis. Although some light-to-moderate cash cattle trade is expected to develop over the next two days, the tone of the market appears to be set with additional activity expected to remain in the current trading range. Maintaining the bullish market tone in live cattle seen during the last week will be important in sparking additional cash market momentum not only through the end of the week, but as both sides focus on upcoming holiday demand. There is a lot of focus on the ability to maintain and build beef demand through the fall. The first measurement is Labor Day holiday movement. This traditionally is the last major holiday weekend of the summer, and this year seems to be gaining more focus than usual when it comes to beef demand due to the subdued summer activity. It appears that the next major price hurdle in October futures remains near $112 per cwt. Strong underlying support would have to continue to develop in beef values over the near future in order to hit and maintain these target prices.

Lean hog futures have stabilized through the second half of the week with trades returning the focus to fundamental market factors such as cash hog trade, export sales and pork values. The midday rally in pork cutout values was a breath of fresh air, but traders are looking for a string of firm gains before getting too excited, as the choppy movement in pork values has added uncertainty to the entire market over the last couple of weeks. Traders look at the recent gains in pork cutout prices with some skepticism, as strong rallies are nice, but unless traders can consistently build on these higher prices and maintain the upward price momentum, the gains are less credible. This is one of the main reasons why lean hog futures have continued to post such wide and volatile market swings over the last two weeks, because trades are less confident in fundamental market moves and uncertain if recent prices shifts can be trusted. Lean hog futures have traded within a wide $4 to $5 per cwt trading range over the last week, creating concerns that continued volatility may be seen through the near future. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Thursday is expected at 478,000 head. Saturday runs are expected at 225,000 head.

	BULL SIDE		BEAR SIDE
1)	Aggressive triple-digit gains in live cattle and feeder cattle futures midweek has sparked renewed expectations of further growth through the end of the week. Nearby live cattle futures are holding new short-term highs.	1)	Long-term beef demand growth is still in question with most of the focus still being placed on Labor Day clearance and essentially short-term product movements.
2)	Strong gains in cash cattle trade over the last two days has sparked increased momentum through the entire complex. Current trade is holding prices generally $4 per cwt higher, adding to the momentum of higher moving cash values over the last six weeks.	2)	Growing skepticism on how the plan to reopen schools in the coming weeks will go in many areas may keep markets volatile over the next couple of weeks. This could limit further long-term market growth in beef values.
3)	Strong triple-digit gains developed in pork cutout values Wednesday. Traders are looking for the opportunity to increase this underlying support with even higher pork prices through the end of the week.	3)	Limited movement to China last week in the upcoming export sales report could put additional pressure on the lean hog complex. This news will be likely more focused on the long-term direction of trade actions with China, rather than a one-week shift in sales, and create longer-term market direction.
4)	Traders will closely focus on the morning export sales report, looking for additional good news about pork sales and shipments to China. Strong export sales numbers are likely to build increased support through morning futures trade.	4)	The backlog of market-ready hogs continues to persist, although packers continue to focus on aggressively pushing for strong processing levels. This will continue to limit the upside movement in cash hog prices as well as values in nearby lean hog futures trade.

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

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