DTN Early Word Livestock Comments

Cattle: Steady to Higher Futures: Mixed Live Equiv $138.83 +1.88*

Hogs: Higher Futures: Mixed Lean Equiv $80.02 +1.17**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

General Comments:

Last week's cash market rally was the largest one-week price shift higher during the late-summer round of price gains. Cash cattle trade continues to show bullish signs with packers focusing on gaining access to market ready cattle going into the Labor Day holiday. Indications that the backlog of market-ready cattle that has plagued the market and subdued cash cattle prices through most of the summer is quickly easing, especially in the North has created some additional underlying support across the entire market. Over the last two weeks, cash cattle prices have rallied $7 to $8 per cwt. This is causing additional bullish expectations by cattle feeders as show lists are likely to be established through the morning Monday. Inventory taking by packers is expected to be the main order of business during the day with limited trade activity or price setting likely to during the day. The expectation that this market rally has not fully run its course, and could lead to some additional price gains before traders start to back away from the market is adding even more optimism to the entire complex. Nearby live cattle futures continue to break through resistance levels, setting market highs not seen since before coronavirus became an issue to the market and overall economy. Although the bullish undertone remains in the live cattle futures, the pullback in feeder cattle trade late last week associated with the renewed rally in corn trade could cause some underlying caution through the entire cattle market during the week.

With August lean hog futures not officially expired, the focus on October lean hog contracts as front month contracts is putting more emphasis on the potential to test short-term highs during the last half of the month of August. Nearby contracts are near or at resistance levels set earlier in the month, and a steady move above these levels is expected to further support commercial buying across the market. The strong upward move in pork cutout values over the last two weeks is rekindling the focus on growing pork demand in the near future. This comes as uncertainty about trade with China still hangs in the balance, but traders continue to focus on the discounted levels pork cuts have held through most of the summer, leaving potential room for demand growth in the coming days and weeks. Deferred lean hog futures continue to hold a strong premium to nearby contracts as traders still remain focused on the glut of market-ready hogs available to packers over the next couple of months. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Monday is expected at 478,000 head.

	BULL SIDE		BEAR SIDE
1)	Strong underlying gains continue to move into beef cutouts. Choice cutouts have rallies over $14 per cwt in the last month. This is sparking increased optimism for beef demand during late summer and fall months, with expectations of further beef price support continuing.	1)	Sharp gains in corn prices in the last week has quickly derailed recent support in feeder cattle trade. The focus on higher production costs pushed August feeder cattle futures $1.33 per cwt lower over the last two trading sessions, creating uncertainty about short-term support returning to the complex during early-week trade.
2)	Cash cattle prices continue to ratchet higher following a $4 to $5 per cwt rally last week. This indicates six weeks of higher cash cattle prices, helping to instill further support moving into the last half of August.	2)	The recent buyer support and price gains in live cattle futures has been unable to significantly shift the ability to bring additional open interest back into the complex. With overall open interest still hovering below 300,000 contracts, cattle markets may have a hard time breaking out of current market ranges.
3)	Pork cutout values have continued to steadily move higher during the month of August. Pork prices have gained $9 per cwt since the first of the month, indicating a strong upward move higher, which is creating additional market momentum through the entire complex.	3)	Cash hog values have been unable to follow the strong upward trend seen in pork cutout and futures trade. The amount of hogs available to the market has created limited cash market support, weakening the overall structure of the hog complex during August.
4)	Lean hog futures have continued to test short-term resistance levels at the end of last week. A firm move higher during early-week trade could quickly spark follow-through commercial support moving to two-month highs in the hog complex.	4)	Concern of long-term pork demand growth in both domestic and export markets is limiting price support through the end of the year across lean hog futures.

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

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