DTN Early Word Opening Livestock

Mixed Trade Likely in Initial Trade

Rick Kment
By  Rick Kment , DTN Analyst
(DTN file photo)

Cattle: Steady Futures: $1 Higher Live Equiv: $140.83 -0.27*

Hogs: $1 Lower Futures: $1 Higher Lean Equiv: $ 78.14 +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 interest remains undeveloped going into the Wednesday trading session as packer interest is likely to improve through the day, but business isn't expected until sometime Thursday or Friday. Asking prices are generally undeveloped but a few asking prices earlier in the week at $122 live and $190 dressed are expected to remain in effect. This could give some definition to the market through the next couple of days, although at this point, there will likely be a wide gap in bids and asking prices once packers do show interest. Firm follow-through buying is expected in feeder cattle trade following the aggressive Tuesday rally. But this is likely to also create the desire to square positions given the wide market shift in the last two weeks. A market correction is likely to develop at some time in the next two weeks, as traders take advantage of the $3 to $4 per rally in the last few trading sessions. Live cattle markets are expected mixed in sluggish direction following cash market uncertainty.

Early cash bids Wednesday are expected steady to $1 per cwt lower with most bids expected to be steady to 50 cents per cwt lower. The strong underlying pressure in futures trade Tuesday as well as lack of support in cash markets early in the week is adding even more softness to the underlying cash market trade. Packers continue to remain confident that they can fill aggressive procurement needs without having to dig deeper into their pockets and pay more for hogs at this point. Futures trade is expected to show increased market pressure following the strong triple-digit softness on Tuesday. Even though overall strength in the market is limited, the potential for short-covering to develop is growing, which could leave markets mixed in a choppy early trading pattern. Total slaughter schedules for Wednesday are expected to be around 477,000 head. Saturday runs are expected at 226,000 head.

BULL SIDE BEAR SIDE
1)

Sharp triple-digit gains through nearby feeder cattle futures has fueled additional market support through the entire cattle complex. This is expected to spark follow-through buyer activity.

1)

Resistance levels in February futures remain at $122.37 per cwt, set last week. This may limit bringing additional buyers back into the complex and may hamper a move higher through the end of the month.

2)

Firm gains developing in cash cattle trade last week is helping to spark follow-through momentum. This is driving additional interest into potential asking prices, which have not yet been fully established.

2)

Limited support in beef values through the week has continued to create concern that market fundamentals may not follow the recent strong support in futures trade. This could quickly erode support in the entire market.

3)

Despite the pressure in cash and futures trade, pork values continue to hold up well through early December. Firm gains continue early in the week, based on active support in most primal cuts.

3)

February lean hog futures have fallen over $2.50 per cwt in less than a week with traders focusing on underlying pressure in the market and continued fundamental softness. This may spark additional weakness in the next couple of trading sessions.

4)

Active buyer interest is developing in deferred lean hog futures as July futures are holding a $30 per cwt premium to front-month December contracts. The focus on stronger demand through the upcoming year as well as more stable summer production levels has focused on underlying market support long term.

4)

Recent news stories that the White House is planning on delaying the second round of farm aid payments on the hopesfor a quick and strong market recovery with China will impact pork producers who have seen prices fall due to trade issues.

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

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Rick Kment