DTN Early Word Livestock Comments

Cattle: Steady to Higher Futures: Mixed Live Equiv $143.42 +0.21

Hogs: Steady Futures: Mixed Lean Equiv $ 97.66 +3.48**

* 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 another round of higher cash cattle trade last week, where cash prices bounced $2 to $3 per cwt higher, market direction is less certain. Bids and asking prices are likely to remain absent most of the day Monday with attention being placed on showlist distribution and inventory-taking for the week. Active cash cattle trade is not likely until midweek or later, putting the focus on both futures trade moves and outside market shifts over the next couple of days. The pullback in live cattle and feeder cattle futures in the last week is creating potential longer-term concerns in the complex. Although the potential for lighter market-ready cattle will be available for packers within the coming weeks, this could cause cash and futures trade to divert on their own paths over the near future. Although the two markets typically move in similar directions over a longer period of time, upcoming fall market conditions may create wider separation between the two market directions. Feeder cattle futures posted the most aggressive losses of all cattle trade last week, with October futures tumbling $3 per cwt through the week. The combination of higher feed prices and longer-term uncertainty in beef demand growth sparked traders to pull back from the complex. The recent lack of support in feeder cattle futures is even more detrimental as October is traditionally when more calves and yearlings are placed into feedlots, creating even more pressure on the cow/calf industry for the year.

Narrow trading ranges on Friday may be indicating that the wild and aggressive price swings the past couple of weeks may be subsiding and traders may be starting to establish more focused market direction within a designated trading range. Early trade is expected to remain mixed Monday morning, although limited volume is likely early in the session. Traders continue to focus on the ability to clear additional pork product in domestic and export channels through the month of October, but there is still uncertainty of just how much additional short-term support will develop before the end of the year. Packers continue to keep plants moving at an active pace, which has started to create additional mechanical issues over the last couple of weeks with strong six day a week schedules testing the processing lines. No changes are expected in the near future from plants trying to maximize weekly processing levels, which will likely continue to add to plant breakdowns, resulting in reduced daily procurement from time to time. More temperate weather through the next couple of months should help keep processing levels active as extreme hot or cold weather typically seems to be even more challenging on plant equipment. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Monday is expected at 482,000 head.

	BULL SIDE		BEAR SIDE
1)	The three-week rally in cash cattle trade continues to build underlying momentum through in the complex, sparking optimism and limited expectations that further cash market support will develop during the month of October as packers focus on tighter supplies.	1)	Sharp losses in feeder cattle futures last week created underlying pressure in all cattle trade. The inability to sustain recent gains in feeder cattle is sparking renewed concerns about further market support in live cattle trade during the fourth quarter.
2)	Moderate-to-firm gains in beef cutout values going into the month of October is creating the expectation that additional support will develop over the next couple of weeks.	2)	Although open interest in live cattle trade has increased significantly over the last several weeks, the inability to continue this upward trend during the month of October could cause noncommercial traders to quickly step away from the market, adding further price pressure in live cattle futures prices.
3)	Long-term support continues to develop in lean hog futures with summer 2021 contracts trading at a $19 per cwt premium to spot December futures.	3)	Cash hog values shifted lower late last week, creating concerns that packers may not remain as aggressive to source additional hogs as previously thought. The combination of reduced daily processing schedules and growing numbers of market-ready hogs could lead to further cash price pressure during the week.
4)	Traders still expect increased export business to develop from Asian countries due to lack of German pork available for export to these regions. This will likely develop over time rather than a sharp short-term increase as expected by some over the last couple of weeks.	4)	Sharp losses in pork cutout values Friday created a roller coaster effect through the hog market as traders remain cautiously optimistic about long-term support, but the inability to push pork prices higher remains a significant short-term roadblock in that plan.

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

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