DTN Before The Bell Livestock

Hog Market Rally Focuses on Technical Momentum

Rick Kment
By  Rick Kment , DTN Analyst
(DTN photo by Nick Scalise)

GENERAL COMMENTS:

Lean hog futures posted aggressive morning gains, with October futures moving above $55 per cwt and setting new short term highs. The underlying momentum in hog trade follows firm technical shifts as well as higher cash and pork values during late August. Cattle trade is sluggish with most traders comfortable on the sidelines as they watch the fireworks develop in the hog complex. Corn remains lower in light to moderate trade. Stock markets are mixed in limited morning trade. Dow Jones is 84 points lower with NASDAQ up 30 points.

LIVE CATTLE:

Open: Mixed. Initial trade in nearby live cattle futures is pointing to light to moderate losses as traders back away from midday gains. Little has changed in the overall fundamental or technical direction of the market over the last couple of days, leaving less of an long term impact on morning prices shifts. Traders continue to focus on upcoming demand and firmness in beef and cash cattle prices. But the growing questions if prices will hold following the surge in Labor Day buying still remains unanswered and could limit further market support. Cash cattle bids are unavailable Thursday morning with the expectation that steady to firm price moves will develop through the rest of the week. Asking prices are $107 and higher live in the South and $175 and higher dressed. Generally trade so far this week has been $2 per cwt higher than last week, but even with early week trade. This could limit expectations of moving prices even higher over the next couple of days. Open interest gained 1,658 positions (292,729). August contracts lost 1,151 positions (4,480) and October contracts slipped 28 positions (124,493). DTN projected slaughter for Thursday is 119,000 head.

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FEEDER CATTLE:

Open: Steady to 30 cents higher. Buyers are slowly trickling into the feeder cattle complex Thursday morning with very little urgency seen across the entire complex. It appears that the pullback in live cattle futures may have curbed aggressive market optimism through the end of the week, but by no means has sparked a change in market direction or desire to liquidate positions. Traders are likely to start adjusting to the upcoming cattle on feed report. Although the overall pre-report estimate is looking for a 6% increase in placements, the wide range of estimates on placements makes this area the main focus of the Friday report. It is unlikely that placements will be below year-ago levels, but at the same time given the skewed and delayed sales schedules through the spring and summer, it is expected to be hard to pinpoint overall placements ahead of the report. Private purchases to feedyards are likely to be the main unknown going into the report. Cash index for 8/18 is $142.62, unchanged. Open interest Tuesday gained 658 positions (46,951).

LEAN HOGS:

Open: $1 to $3 higher. Strong underlying support redeveloped Thursday as traders continue to rebound from early-week losses with the expectation that firming fundamental support will further support technical buying activity during late August. Export sales to China bounced higher again with 6,500 metric tons reported sold to the country at the end of last week. This helped to calm markets following the previous report posted sizable cancelations. Given the generally light overall export sales last week, the stronger movement to China represented over 1/3 of all exports for the week, creating hope that increased overall volume will continue to move to China through the fall and winter months. Lean hog futures were able to break through short-term resistance levels, trading at two-month highs, but there remains significant resistance between $55 and $58 per cwt which may be difficult to break through in the near future. Cash hog bids are expected $1 lower to $1 per cwt higher, with most bids steady to 50 cents higher. Open interest fell 5,209 positions (213,854). October fell 297 positions (99,916) and December added 589 positions (51,950). Cash lean index for 8/18 is $55.08, up 0.27. DTN projected slaughter for Thursday is 483,000 head. Saturday runs are expected at 235,000 head.

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

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Rick Kment