DTN Early Word Opening Livestock

 
Cattle: Steady-$2 HR Futures: Mixed Live Equiv $161.51 + 0.56* 
Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 95.60 - 0.93**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Packers and feedlot managers will go into midweek with very little direction as only a few bids have surfaced so far. These bids show very little evidence of market interest at this point of the week. Asking prices are not readily available at this point either, leaving most of the heavy lifting to be done in the second half of the week. Sharp losses seen late Tuesday in futures trade will likely create a significant shift in market tone over the entire cattle complex through the rest of the week. Feeder cattle futures will have expanded trading limits following the limit losses Tuesday. Live cattle markets posted strong losses, and are likely to shift lower in early trade, although the volatility over the last couple of sessions may quickly bring buyers back into the market.

Lean hog futures continue to hold support going into midweek based on fundamental support and the expectations that follow through packer demand will continue to push cash markets higher through the next couple of weeks. Cash prices are likely to fuel additional buying through the end of the week, but it is uncertain if there will be enough support to keep buyers active given the sharp pressure in the cattle market seen Tuesday. Early activity is expected to be mixed in a narrow range with traders focusing on a combination of follow through buying and position taking based on outside market shifts.

	BULL SIDE		BEAR SIDE
1)	Cash market activity building on firm support over the last couple of weeks and the ability to push live cattle futures to new contract highs early in the week could help to stimulate packers to secure additional cattle at higher money given expectation that supplies will continue to remain firm in the near future.	1)	Liquidation quickly flooded through cattle markets late Tuesday afternoon, sending feeder cattle market spiraling to daily limit lows. This not only created significant pressure in the market, but also expanded trading limits Wednesday.
2)	Boxed beef values continue to gain momentum during the first week of June. This is helping to minimize the back and forth shifts in the futures trade and offset any light volume position taking that may be developing across the complex.	2)	The increased volatility in the cattle futures complex is creating widespread concern through the market. Even though aggressive long positions continue to be held in the market, there remains the potential that these could very quickly be liquidated. Fundamentals in the market have remained relatively strong, but there are questions if they are able to hold back the flood of liquidation that this type of selling could bring.
3)	Cash hog values have continued to firm with active buyers moving back into the market. Even though total hog procurements through Saturday only expected to be at 28,000 head, the firming tone of cash hog values continues to draw buyers back to the complex based on summer demand.	3)	Pressure in lean hog cutout values Tuesday afternoon limited the overall optimism across the lean hog futures complex as traders continue to focus on long-term market strength, but are becoming much more cautious than they have been in the past. This could allow for a much limited market outlook than previously seen.
4)	Pork interest continues to remain strong with overall movement of product extremely good both domestically and in export markets. This is not only helping to stimulate fundamental factors through the market, but also sparking technical buying support across the complex.	4)	Lean hog futures pulled back from session highs Tuesday as traders were severely impacted by the aggressive triple-digit losses in the cattle market. This quickly showed just how intertwined each of the markets are with each other and how one swift move in one commodity market can have a lasting and dramatic impact in outside markets. The further potential of a wide shift in cattle prices may continue to impact the lean hog complex over the coming days.

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

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