DTN Before The Bell Livestock

Lean Hog Futures Expand Weekly Gains

Rick Kment
By  Rick Kment , DTN Analyst
(DTN photo by Nick Scalise)

GENERAL COMMENTS:

Mixed live cattle trade seems to be the stability of the complex Thursday morning, surrounded by aggressive losses in feeder cattle futures and strong triple-digit gains in lean hog futures. Light trade volume is allowing for increased market volatility in the complex to develop as most traders are already out of the market ahead of the holiday weekend. Corn is trading higher in light to moderate trade. Stock markets are mixed in limited morning trade. Dow Jones is 10 points higher with NASDAQ down 44 points.

LIVE CATTLE:

Open: Mixed. Live cattle trade remains inactive Thursday morning, as traders seem willing to carry current market prices into the New Year. Although strong pressure has developed in futures trade during the week based on increased grain and feed prices, the higher cash cattle and boxed beef values is adding market stability to the lightly traded market. Markets will close at regular scheduled times Thursday, but remain closed Friday due to New Year's holiday. This is expected to leave overall market direction limited and prices stuck in a narrow range through most of the day. Cash cattle markets started trading Wednesday with live trade developing at $111 per cwt, $1 higher than last week. Dressed trade is seen at $175 to $176 per cwt, $2 to $4 higher than last week. Overall trade volume is reported as generally light, which would indicate that additional business will need to be done before both sides step away for the long holiday weekend. It is likely that the tone of the market is set, but the uncertainty of if feeders are willing to part with cattle at these prices or be willing to hold them until next week, hoping for additional support, could determine late day cash price levels. Beef export sales for the week of Christmas totaled 14,900 metric tons with shipments for the week at 27,600 metric tons. Japan, China and South Korea led the list of purchases of U.S. beef for the week, although no significant country posted aggressively strong buying interest during the week. Open interest slipped 873 positions (289,783). December contracts lost 172 positions (55) and February contracts fell 1,111 positions (109,776). DTN projected slaughter for Thursday is 115,000 head.

FEEDER CATTLE:

Open: 50 cents to $1 lower. Additional price pressure is seen in all feeder cattle futures as traders continue to take into account the surging grain market prices. Unlike previous trading sessions, the bulk of price pressure Thursday morning is in deferred contracts as traders focus on the potential that these high feed prices may be around most of the year. Limited trade is still seen in nearby contracts with lighter losses developing, although the underlying weak market tone may continue to unwind previous market support well into early January. Cash index for 12/29 is $138.71, up 0.31. Open interest Wednesday fell 1,350 positions (43,129).

LEAN HOGS:

Open: Steady to $1.50 higher. Strong early morning buying is allowing 2020 to end with a bang, as nearby contracts are posting triple-digit gains on the last day of trade for the year. The expectation that additional shifts in trader interest exiting the cattle market over the last few days are finding refuge in the hog complex. Grain market moves will continue to affect hog production costs too, but the shorter time to market has less significant price impact over the short term. Underlying strong pork demand still exists and is expected to carry into early January buying patterns. Export sales during Christmas week remained disappointing in the pork complex with a total of 7,700 metric tons sold, while 39,400 metric tons were shipped. Mexico became the largest net purchaser of pork products during the week with 10,300 metric tons reported sold. China posted positive net sales of 1,600 metric tons, but this is still considered to be generally bearish for the overall market. Several countries posted cancelations, but most of these countries would not be considered major pork destinations, and the overall cumulative effect of these cancelations affected overall product sales, likely leading to underlying market softness in the coming days. Cash hog bids are expected $1 lower to $1 per cwt higher, with most bids steady to 50 cents lower. Open interest added 1,145 positions (189,708). February fell 296 positions (77,755) and April added 627 positions (44,800). Open interest in pork cutout futures added 20 positions (787). Cash lean index for 12/29 is $59.86, down 0.07. DTN projected slaughter for Thursday is 425,000 head. Saturday runs are expected at 338,000 head.

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

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Rick Kment