DTN Early Word Livestock Comments

Cattle: Steady to Higher Futures: Lower Live Equiv $142.23 -0.57

Hogs: Higher Futures: Mixed Lean Equiv $ 98.06 -2.45**

* 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 interest remains limited midweek with cash trade likely to be delayed until the last half of the week. The wide upward support in grain markets continues to be the main focus across the ag complex, carrying a significant role in the cattle market the last couple of days. Feeders are expected to show significant support as asking prices will remain elevated once more cattle are priced, but the growing concern of pressure in live and feeder cattle futures could give packers the reasons they need to keep bids well below asking prices and potentially curb the amount of cattle purchased through the week. Given the active cash market trade over the past few weeks, packers appear to be adequately positioned in the event that limited trade may develop. The focus during early October continues to be looking forward to tighter market-ready supplies expected, but given the lack of technical support in deferred live cattle trade and the entire feeder cattle complex, packers may quickly test the lower limits of cash markets through the end of the week. Feeder cattle futures have turned bearish with triple-digit losses in all contracts Tuesday breaking through initial support levels. November contracts have tumbled nearly $6 per cwt over the last week, creating growing concerns of active follow-through liquidation yet to develop. The live cattle complex will have a hard time developing support as long as feeder cattle futures are unable to find solid footing. The continued surge higher in grain and feed prices continues to be a significant driver in feeder cattle weakness.

Firm commercial buyer support moving into nearby lean hog futures Tuesday is helping to spark renewed interest ahead of the midweek session. The hog market has gained significant support from the perils of the cattle trade with traders looking for a "safe haven" for the time being, and the hog complex seems to have been the most convenient market to jump into. Unlike several other ag commodities, the lean hog futures complex remains well entrenched within a sideways market range. This allows prices to move significantly higher over the short term without any significant changes or shifts in technical of fundamental market factors that would bring about long-term changes or increased volatility. Essentially meaning that the hog market has room to move higher without gaining a lot of attention. This is the perfect place for traders to "hide out" and potentially take advantage of moderate price swings while avoiding the volatility and uncertainty in the cattle and grain markets. This mentality could also lead to moderate back and forth price shifts over the coming days, but prices are still expected to remain rangebound in the near future. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Wednesday is expected at 488,000 head. Saturday runs are expected at 277,000 head.

	BULL SIDE		BEAR SIDE
1)	Firm expectations of further cash market support over the upcoming weeks is creating optimism that the upward moves in cash prices are not over. This could push light-to-moderate gains in late week cash cattle trade despite the bearish tone in futures prices.	1)	Sharp losses in feeder cattle futures developed Tuesday, quickly breaking away from supportive prices near $140 per cwt. November feeder cattle futures have tumbled $6 per cwt in the last week, creating the potential for further active losses in the near future.
2)	Firming support continues to hold in nearby live cattle trade despite the underlying weakness in feeder cattle trade. These moves focus on the still firm fundamental market factors seen in the upcoming weeks, which may continue to test December contract levels between $112 and $114 per cwt.	2)	Boxed beef values shifted lower Tuesday, creating concerns that the market may have reached a temporary high, and could show further weakness during the next couple of weeks.
3)	Active gains in nearby lean hog futures defied the surging feed markets as traders continue to focus on potential gains through the upcoming weeks.	3)	Pork cutout values tumbled lower Tuesday, erasing most of early week gains. This wide rollercoaster-type shift in pork values is causing uncertainty in the true value of pork.
4)	Active buying continues to push summer 2021 contracts to seven-month highs. This points to growing underlying demand support as traders focus on tighter supplies and recovering market structures within the next year.	4)	Cash hog values slipped, creating concerns that packers may be starting to quickly shift buying as they still find adequate numbers of market-ready hogs available to keep plants full through the fall schedule.

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

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