DTN Early Word Opening Livestock

 
Cattle: $2 to $4 LR Futures: Mixed Live Equiv $129.02 + 1.06*
Hogs: Steady to $1 LR Futures: Mixed Lean Equiv $ 80.33 - 2.40**
* 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 light to moderate in most areas Wednesday with prices generally $3 to $4 per cwt through the South and $103 to $104 for live basis. In the North, dressed price ranges were mostly $160 to $163 per cwt, which is $4 to $7 per cwt lower than last week. Most business will likely be done in the South, although additional totals will likely need to be moved yet in the North in order to satisfy next week's procurement needs. But end of the week movement could trickle in through all areas, although without a major shift in futures or boxed beef movement, prices are likely already set. Futures are expected to open mixed in a moderate range as traders focus on additional follow-through support from buyers and will try to establish a market bottom near $103.50 in the October and December contracts.

Packers will go to work with another day of defensive cash bids offered and access to ample amounts of hogs. This will likely flood the market with pork ready for market. Overall lack of direction and activity during the midweek futures complex has created a lackluster shift to the sharp losses that developed earlier in the week. Even though the market was able to put an end to the downward market push, the overall lack of momentum created even more concern as to just how much longer long-term support would remain given the already weak fundamentals.

	BULL SIDE		BEAR SIDE
1)	Nearby live cattle futures rallied higher midweek, aggressively coming back from sharp losses that not only created technical pressure but also damaged the overall momentum of the market. If a market bottom can be established at this level by the end of the week, it could draw additional buyer support back into the market and help rebuild buyer confidence through early October.	1)	Cash cattle trade continues to weaken with follow-through pressure developing Wednesday as trade in most areas confirmed cash sales generally seen $3 to $4 per cwt lower from last week's level in the South and prices $4 to $7 lower in the North. The lack of activity through the end of the month continues to limit seasonal support.
2)	Sharp triple-digit gains across feeder cattle futures bounced off contract lows Wednesday, creating market momentum during the month of October. Open interest coming back into the market through the end of the week will continue to support underlying market activity and drive commercial and investment interest.	2)	Lack of price separation between live cattle contracts created the inability to roll contract months, taking out seasonal and basis opportunities in the markets. October 2016through April 2017 contracts currently hold a 63-cent price spread between all four contract months. Essentially, this group of contracts continues to move back and forth as one contract, allowing traders very limited options in futures pricing.
3)	They say that before you can rise, you have to stop falling. This is the state the lean hog futures find themselves in Thursday morning. Although market gains have not yet developed, the stability seen at midweek proved a moral victory, even though it was not technically important chart wise. The next several trading sessions will be important in developing buyer interest if a market bottom is developed through the end of September.	3)	Lean hog futures continue to trade at the low end of the market range with nearby contracts at or near contract lows. The lack of fundamental support in the market and weakness in pork values midweek is creating additional concerns about support coming back into the futures market, although at this point, there is no evidence that additional long-term pressure will develop either. This leaves the lean hog market in an unknown middle with unclear direction.
4)	Lean hog futures continue to be on the edge of breaking out based on the potential to build firm demand for domestic and export business. The ability to harness this demand given the aggressive supply available in the market at this point will be the key to managing and maintaining overall firmer margins.	4)	Cash prices are expected to turn lower once again with packers expected to offer steady to $1 per cwt lower as most bids are expected to be steady to 50 cents lower, gaining a full run of hogs for the expected 437,000 likely to run through plants during the Thursday run.

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

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