DTN Early Word Livestock Comments

Cattle: Steady to Lower Futures: Mixed Live Equiv $135.37 +0.19

Hogs: Lower Futures: Lower Lean Equiv $104.73 +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:

Cash cattle trade appears to be generally done in most areas with limited scattered sales reported Thursday. There could be some additional clean-up trade during the day Friday, but most of the needed trade has been already done. In the event of a major surprise in the afternoon Cattle on Feed report, some additional business may be seen, but for the most part, cash trade is expected to remain near the $105 to $106 price levels live and $164 to $166 per cwt dressed. This would be generally $2 to $4 per cwt lower than last week's average, sparking potential additional further market weakness in the upcoming weeks. Despite the narrow gains in boxed beef values Thursday afternoon, the underlying tone of the cattle complex remains weak with live cattle markets still holding firm triple-digit losses late Thursday as concerns of further liquidation continue across the complex. Spot December futures are trading at the lowest price levels since June, with prices closing in on support levels of $102.05 per cwt, which also would represent June lows. This would move prices to five-month lows, with limited underlying support building in the complex at this point. Traders remain intently focused on the upcoming Cattle on Feed report Friday afternoon, with estimated placements expected 2.5% above year-ago levels, while total cattle on feed are expected to jump 3.5% from year-ago levels. A bearish report is expected to be of more concern to the market at this point, given the currently weak status of the entire cattle complex.

Sharp losses in lean hog futures Thursday created additional widespread weakness in the complex. December contracts posted limit losses of $3 per cwt as traders quickly and aggressively backed away from the complex, allowing not only prices to move to initial support levels, but expand trading limits through the entire complex Friday. This has the potential to create significant and long-lasting damage to the entire lean hog complex as traders focus on still aggressive hog supplies and uncertainty of demand growth over the upcoming months. The lack of active buying from China over the past two weekly Export Sales reports, combined with concern that global pork exports may continue to struggle to post consistent support could add further pressure to the complex. Thursday's Cold Storage report posted total pork supplies steady with September levels, while falling 28% from year-ago levels. The currently active procurement and processing rate will be needed in order to maintain the current supply levels. Cash hog prices are expected $1 lower to $1 higher with most bids expected $1 Lower. Slaughter Friday is expected at 484,000 head. Saturday runs are expected at 239,000 head.

	BULL SIDE		BEAR SIDE
1)	Feeder cattle futures continue to defend long-term support levels near $130 per cwt. The ability to hold prices above these price points over the next couple of weeks is the best chance the feeder cattle complex has to regain buyer support and establish renewed active interest in the complex.	1)	Live cattle futures are testing long-term resistance levels in June, a move below $102.50 per cwt would likely spark renewed and aggressive liquidation before the end of the week.
2)	Traders will closely monitor the afternoon Cattle on Feed report, focusing on active marketing through the month of September, and putting more emphasis on the ability to rid any backlog of cattle that still exists from the spring and summer processing reductions.	2)	The afternoon Cattle on Feed report will be closely watched Friday afternoon with traders looking for moderate gains in placement and on feed numbers. Report totals exceeding pre-report estimates are expected to have a bearish impact on trade early next week.
3)	Continued short- and long-term support in pork cutout values are expected despite wide ranging shifts in futures trade. This will continue to focus on the ability to clear pork supplies into the holiday season.	3)	December lean hog futures tumbled sharply lower Thursday, stopped only by trade limits of $3 per cwt. This will allow for expanded trade limits in all lean hog complex of $4.50 per cwt, causing significant concerns of further end-of-the-week market weakness.
4)	Despite the sharp losses in nearby contracts over the last couple of days, deferred futures are remaining extremely resilient. This is causing premiums to once again develop in summer 2021 contracts as traders continue to focus on tighter hog supplies in the coming months.	4)	Cash hog prices posted aggressive triple-digit losses. Packers seem to have access to the needed core supplies through the end of the week as they adjust bids lower to match recent moves in futures trade. This could further weaken the entire lean hog complex over the next few days.

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

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