DTN Early Word Livestock Comments

Cattle: Steady to Higher Futures: Lower Live Equiv $143.19 +0.60

Hogs: Higher Futures: Mixed Lean Equiv $ 96.81 -0.68**

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

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

General Comments:

Following the higher cash cattle trade last week, limited direction is expected in the cash market arena Monday. Generally, cash trade held $2 per cwt gains seen earlier in the week with live cattle trade hovering around $105 per cwt, while dressed cattle traded at $165 per cwt in nearly all northern regions. Showlist distribution and inventory taking is likely to be the focus of both sides during Monday with bids and asking prices likely to be undeveloped until midweek or later. Although the end of the month and quarter will be seen Wednesday, this is likely to have less impact on cash trade and timing than futures market moves where some traders will be squaring positions at the end of the third quarter. The Cattle on Feed report Friday carried a bearish tone with increased cattle placements becoming the focus of the September report. Placements increased 9% from year-ago levels, which was well above pre-report estimates. The focus on growing placement levels is not shocking, given the unusual pattern placements have seen through the year, but it does limit the expectation of long-term supply tightness through the first and second quarter of 2021 that has been previously anticipated. Cattle on feed numbers were also increased, which is likely to create additional market pressure through the complex Monday. But traders quickly backed away from all cattle markets Friday ahead of the bearish report, which may limit further through price pressure during morning activity. November and January feeder cattle futures led the complex lower Friday, posting losses over $2 per cwt, and quickly changing the short-term direction of the complex. Given the uncertainty in demand through the fourth quarter of 2021, it is likely that initial pressure will widely develop in live cattle and feeder cattle futures, but this downward market shift may not be able to hold as traders still focus on previous discounts that have already developed in the market over the last few days.

Friday's moves in lean hog futures trade indicate just how quickly traders can change direction as late day buying quickly negated the bearish supply report seen the previous day. This wide market surge not only posted triple-digit gains in most nearby contracts but pushed spot October contracts above $71 per cwt for the first time since February. The focus in the lean hog futures complex has been less on current supply levels, and more on the potential and ability to aggressively grow export demand. The focus on increasing pork exports to China and other Asian markets through the end of the year has quickly put October contracts at a strong premium over December futures. Even with the strong move higher in nearby prices, hog supplies will continue to build over the next sixty days, creating burdensome market issues when it comes to processing the expected larger and more plentiful hog crop through the end of the year. This could continue to widen the price gap between October and December contracts as counter seasonal market shifts may continue to develop. Cash hog prices are expected $1 lower to $2 higher with most bids expected steady to $1 higher. Slaughter Monday is expected at 484,000 head.

	BULL SIDE		BEAR SIDE
1)	Higher cash cattle trade at the end of last week continues to help support underlying market fundamentals. This is expected to create higher asking prices as the week continues as feeders continue to leverage market-ready cattle at higher prices expecting tighter supplies in the upcoming weeks.	1)	Sharp losses in live cattle and feeder cattle futures Friday is creating even more concern that further pressure will develop through the end of the month. Strong losses Monday morning could quickly spark triple-digit losses with traders unwilling to step in front of the complex on the move lower.
2)	Strong gains on Friday in choice boxed beef values helped to continue to support overall beef values, while also widening the price spread between choice and select cuts. This fundamental shift is helping to put more emphasis on higher end cuts with the expectation that choice cuts will continue to gain market support over the upcoming weeks.	2)	Feeder cattle placements increased 9% from year-ago levels. This is well above analyst expectations and will likely create additional underlying pressure through the complex at least in early Monday morning.
3)	Strong underlying gains in all nearby lean hog futures quickly dashed fears of larger inventory, derailing the recent market rally. October futures surged above $71 per cwt, helping to focus on further long-term support developing during late 2021.	3)	Despite Friday's rally higher in lean hog futures trade, the focus on abundant hog supplies through the end of the year, especially in October and early November is expected to limit further widespread market support.
4)	Cash hog values continue to slowly but steadily shift higher as packers continue to aggressively fill procurement needs in order to keep up with expected supply demand within the coming weeks, while maintaining strong packer margins.	4)	Short-term expectations for export pork demand growth have been aggressively built up over the past couple of weeks. This optimism is likely to be overly aggressive, creating a potential market correction if strong sales are not seen in the next two weeks.

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

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