DTN Early Word Opening Livestock

Cattle: $2 to $3 Lower   Futures: Mixed    Live Equiv: $143.73 -0.45* 
Hogs:   Steady           Futures: Higher   Lean Equiv: $ 91.82 -1.83**
 
*   based on formula estimating live cattle equivalent of gross packer revenue 
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Firm market pressure developed in cash cattle trade through the South on Wednesday. This continued the trend of early-week trade, but ongoing pressure has sparked lower cash market prices the last two weeks. Light-to-moderate trade developed in Kansas and Texas at $117 per cwt, which was $3 lower than last week. Interest in the North is still sluggish but is expected to follow the weaker market trend when trade develops the next two days. Futures activity is expected to be mixed with light follow-through buyer support potentially moving into live cattle trade based on recent market pressure and overall lack of downside market risk. Open interest is expected to slowly but steadily increase through the end of the week as traders have already exited the market. Significant upside market potential remains over the coming weeks due to strong fundamental demand for beef. But the inability to bring additional active volume may limit short-term support.

There was strong support in nearby lean hog futures at midweek with June futures once again leading the complex higher with a $2.70 per cwt rally Wednesday. Even though there is overall market uncertainty surrounding a trade deal with China and increased tariff levels from both sides over the last week, the focus in the hog complex has moved to the strong global demand for pork. Even though China is the largest pork producer and user of pork in the world, the effects of African swine fever are being felt in all areas of the world. Even if China imports pork from other countries, this still leaves a global vacuum to fill as market shifts will develop around the world. It is unlikely that the hog complex will see the same unrestricted market surge from March, but a more realistic focus on long-term support is expected to remain much more sustainable over the near future. Cash trade is called $1 lower to $1 higher Thursday morning with most bids steady. Expected slaughter Thursday is at 465,000 head. Saturday runs are expected at 74,000 head.

	BULL SIDE		BEAR SIDE
1)	There is firm underlying support at $109.50 per cwt in June futures. This is expected to spark long-term market support as traders refocus on expected demand growth in the beef complex.	1)	Strong continued losses in feeder cattle trade has sparked increased pressure in the entire cattle market. This lack of stability is expected to limit buyer interest through the end of the week.
2)	Light-to-moderate noncommercial interest is expected to be moving back into the complex with slow but steady increases in open interest through the week. This is deviating from the sharp liquidation the past three weeks, as buyers focus on an oversold market structure.	2)	Firm underlying buying in grain trade based on late corn planting and the potential that overall corn acreage may be severely limited is adding even more pressure to the cattle complex based on production cost increases due to higher grain markets.
3)	Traders will closely watch the Export Sales report Thursday morning, looking for additional China sales through the end of last week. This would help to confirm the recent market futures rally, and rekindle additional demand support.	3)	Sharp pressure in pork cutout values midweek has created additional concerns and questions about the sustainability of futures prices through the week. Even if long-term pork demand expectations are strong, market support will not continue if pork values cannot contain recent price levels.
4)	The expectation and hope that a trade deal with China will still develop at some point and that tariff levels will be dropped is creating longer-term expectations of moving aggressively back into the Chinese market.	4)	The impact of the trade war will continue to be in the forefront of most traders' minds even though prices continue to move higher. This makes the entire complex extremely volatile as any bearish news has the potential for wide market shifts.

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

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