DTN Before The Bell Livestock

Increased Feedlot Numbers Pressure Cattle Futures

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

GENERAL COMMENTS:

Swift and aggressive losses are seen in live cattle and feeder cattle trade Monday morning as traders get the first chance to trade the bearish cattle on feed report which was released Friday. Triple-digit losses are seen in most cattle contracts as the focus on larger than expected supplies going into the fall months could weaken the tone of the market over the next several weeks. Hog futures have bounced higher, gaining spill over support from other livestock trade, as well as firm underlying support in outside markets. Corn remains higher in light to moderate trade. Stock markets are higher in limited morning trade. Dow Jones is 140 points higher with NASDAQ up 82 points.

LIVE CATTLE:

Open: 50 cents to $1.50 Lower. Firm pressure is seen in early trade Monday as traders quickly react to increased cattle numbers in feedlots. The expectation that cattle numbers would increase a fraction of a percent during July was dashed as actual placements according to the Friday report posted a 2% increase from year ago levels. Unexpected large placement numbers was the major factor in the rise in cattle numbers, but cattle marketed through the month of July also was slightly disappointing given the hope and expectations that higher cash cattle trade would have moved additional cattle through the system. This move lower over the last couple of days could be the trigger in order to set holiday highs as there is also concern that beef demand will start to follow seasonal trends following Labor Day. Open interest gained 1,323 positions (294,708). August contracts lost 637 positions (2,892) and October contracts slipped 12 positions (124,277). DTN projected slaughter for Monday is 117,000 head.

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FEEDER CATTLE:

Open: $1 to $2 Lower. Expected follow through losses are seen in feeder cattle trade Monday morning following the bearish cattle on feed report Friday. Cattle placements in July increased 11% from year ago levels, marking the past two months of increased placements above last year's levels. This focus on higher placements moving into the system is well above the estimated range. The expectation is that the major shift in higher placements is expected to be from private sales, and potentially increased retained ownership through the summer months. Continued weakness may develop through most of the session, although this is not expected to sustain significant aggressive losses over the next few days. Cash index for 8/20 is $143.90, up 1.10. Open interest Friday fell 183 positions (47,473).

LEAN HOGS:

Open: Mixed. Initial strong support is returning to the October contracts as prices are nearing $1 per cwt gains in light to moderate support after losses late last week. The support in all nearby contracts is a welcome sight given the bearish tone through the rest of livestock trade Monday morning. Support is limited to nearby contracts as very limited trade volume is seen in all deferred contracts as trades focus continue to be very short-term focused during initial morning trade. Cash hog bids are expected $1 lower to $1 per cwt higher, with most bids steady to 50 cents higher. Open interest fell 540 positions (216,656). October slipped 1,471 positions (100,173) and December added 4 positions (52,888). Cash lean index for 8/20 is $55.51, up 0.10. DTN projected slaughter for Monday is 480,000 head.

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

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Rick Kment