DTN Early Word Livestock Comments

Cattle: Steady to Higher Futures: Lower Live Equiv $142.16 -0.07*

Hogs: Higher Futures: Mixed Lean Equiv $100.69 +2.63**

* 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 remained extremely light Wednesday with a few deals reported at $108 to $108.50 live basis and $169 per cwt dressed. Generally, the reported trade is seen $1 per cwt higher than last week, but there is enough business in the books to establish a good market trend for the week at this point. It is likely both sides will become more active over the next couple of days, with feeders unlikely to back away from current market momentum and push for additional gains with elevated asking prices. Although significant volume may develop Thursday, there is the possibility active trade could be split between the next two days as the end of the week moves in boxed beef values could have a significant role in supporting cash cattle prices. The cash trade is not only focused on weekly movement, but the ability to establish strong additional gains during the first week in October could easily set the tone and create expectations of further moderate to strong gains in weeks to come. Strong gains seen Wednesday in December live cattle futures have quickly changed the short-term tone of the market, which struggled to gain support and hold short-term support levels of $111 per cwt during early week trade. With spot-month contracts closing at $113.10 per cwt, traders are testing September highs and nearby resistance levels of $113.12 per cwt at opening bell. A firm move over these levels would open the door for further noncommercial buyer support moving into the market. Feeder cattle futures were the most watched livestock contract Wednesday, reversing the $6 per cwt price slide and pulling back from early morning losses Wednesday. The ability for buyers to step into the complex and post even narrow gains early Thursday morning could quickly reflect a major shift in market direction and bring about increased late-week buyer support.

Continued strong gains seen in nearby lean hog futures have taken the attention away from erratic and wide price shifts in cash and wholesale pork values. Traders are looking for additional direction from the weekly export sales report Thursday morning, with hopes for further evidence that pork exports continue to grow in the absence of Germany in the pork export market. It is expected that eventual export growth will be more strategic and long-term based than previously hoped, but at least moderate support should be seen to trading partners like China, Japan and South Korea in order to maintain the market strength seen in lean hog futures. December futures remain well below initial near-term support levels of $66 per cwt. The inability to breech these levels within the next couple of weeks could likely limit further commercial and noncommercial interest moving into the hog complex, especially as cattle futures regain footing and will likely draw traders back to the cattle complex who had found a safe haven in the hog market. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Thursday is expected at 490,000 head. Saturday runs are expected at 276,000 head.

	BULL SIDE		BEAR SIDE
1)	Feeder cattle futures appear to have turned the corner at midweek, as moderate to firm buyer interest moved into nearby futures, establishing short-term support levels of $137.50 per cwt. This is likely to limit further pressure through the end of the week.	1)	Strong gains continue to develop in grain trade, which will mean higher feed costs for cattle feeders and serve as a significant drag on the feeder cattle market going into the largest placement period of the year.
2)	Cash cattle trade posted firm support during midweek activity. Although more trade needs to develop in order to establish a market trend, prices on reported sales are seen $1 per cwt higher than last week.	2)	Limited short-term support in boxed beef values is creating additional uncertainty surrounding the ability to push live cattle futures higher in the near future. Fundamental market indicators remain weak to moderate for the short term given demand uncertainty.
3)	Sharp gains in pork cutout values have continued to cast questions on volatility in the market as the upward market trend for pork product continues to develop despite the daily back and forth market swings.	3)	Cash hog values slipped lower at midweek, creating concerns that additional on-farm price pressure may develop through early October. This could quickly cool recent support in futures trade.
4)	Traders are looking for positive movements of pork in the weekly export sales report released Thursday morning. This continues to be the driving force behind expected firmness in hog futures, and the need to greatly expand global exports.	4)	Concerns that weekly exports may not live up to previous expectations Thursday could keep traders on the sidelines through much of the morning.

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

(c) Copyright 2020 DTN, LLC. All rights reserved.