DTN Early Word Livestock Comments

Cattle Traders Focus on Stability Early Tuesday

Rick Kment
By  Rick Kment , DTN Analyst

Cattle: Steady Futures: Mixed Live Equiv $147.03 +1.15

Hogs: Higher Futures: Mixed Lean Equiv $ 79.66 +1.06**

* 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 remains quiet after a typical day of showlist distribution and inventory-taking Monday. Showlists are called steady to lower with reduced offerings developing in the South, while Northern availability remains generally stable with last week's levels. This could limit the intensity of cattle trade early in the week, although the underlying tone of weaker price futures trade could cause uncertainty through the complex. Given cash cattle prices last week posted an average gain of $1.53 per cwt above the previous week, feeders are still expected to look for steady-to-higher money despite futures market pressure. Limited trade was seen late Monday in Texas at $105 per cwt. This is generally $1 per cwt lower than last week, but it is too early to use this to set the tone for the week. But given the seasonal trend for cash cattle and beef values to top out near Labor Day, it could be hard to sustain significant short-term support in the next couple of weeks. Following sharp losses in feeder cattle trade and significant pressure in early 2021 contract months based on the increased placement levels during July, trade Tuesday morning is expected to remain mixed. A combination of follow-through selling is likely to be quickly met by buyers stepping back into the complex following the recent retraction. With prices quickly taking out the market top over the last week, the potential to establish a well-defined sideways market trend near between $103 and $110 per cwt through the upcoming fall months may draw moderate trade activity. Feeder cattle contracts continue under pressure as the expectations that increased placements will continue through the rest of the year given drought issues and seasonal trends, could have established a market high within the last week.

Mixed trade is expected early Tuesday morning as traders continue to move back into the complex with little market news developing in the hog complex. The bearish market shifts in cattle trade has sparked some underlying spillover support from traders looking for a place to land, but this has caused little change to fundamental or technical market factors during late August. The concern of just how much post-holiday pressure pork demand will carry continues to limit deferred futures trade, although the focus on maintaining wide price premiums in early 2021 continues to focus on tighter long-term supplies in the hog industry. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents lower. Slaughter Tuesday is expected at 484,000 head.

BULL SIDE BEAR SIDE
1)

Boxed beef prices continue to shift higher, indicating that a market high has not yet been set. This could spark some additional buyer support moving into the complex over the next several days.

1)

Continued focus on potential long-term supply levels in the cattle market will continue to impact price levels in early 2021. This will continue to have a significant impact given the increased cattle placements expected through the end of the year as seasonal feeder cattle runs start.

.
2)

Beef demand leading into and through the Labor Day Holiday is expected to remain good. Although Labor Day is typically the last major grilling season of the summer, the focus on maintaining product demand through the month of September based on current beef values may reduce traditional seasonal price pressure.

2)

Concerns of moderate-to-firm price pressure once Labor Day Demand is met could continue to limit buyer interest through the entire cattle complex. This could impact both cash and futures trade over the coming days and weeks, potentially setting summer highs.

3)

Pork stocks fell significantly from June levels, at just 75% of previous month levels by the end of July. This continues to focus on strong demand for pork while plant production levels continue to inch higher through the summer months.

3)

Continued long-term demand growth of pork from domestic and export markets continues to limit the upside market potential in nearby contracts. This comes as prices remain at the top end of the market range, but still unable to move significantly above $55 per cwt.

4)

Cash hog and pork values surged higher Monday, helping to sustain additional fundamental support across the entire complex.

4)

Despite the early week gains in cash hog prices, the significant discount of cash hog trade to futures prices continues. As optimistic as a $1.18 gain in cash values is, the fact that average prices remain near $41 per cwt and are trading at a $13 per cwt discount to spot futures limits the strength of the cash hog market.

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

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]
P[R1] D[300x250] M[300x250] OOP[F] ADUNIT[] T[]
P[R2] D[300x250] M[320x50] OOP[F] ADUNIT[] T[]
DIM[1x3] LBL[] SEL[] IDX[] TMPL[standalone] T[]
P[R3] D[300x250] M[0x0] OOP[F] ADUNIT[] T[]

Rick Kment