DTN Early Word Opening Livestock

Cattle Trade Focusing on Firm Building Support

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

Cattle: Steady $2 HR Futures: Mixed Live Equiv $132.17 - 0.71*

Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 78.82 - 0.04**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Activity is expected to become more active early Thursday with packers becoming more involved as bids are likely to redevelop early through morning trade with Southern bids likely to be seen at $108 per cwt while Northern dressed bids at $172 to $173 may be seen at midweek. Although feeders may have no interest in these price levels, asking prices will once again be stated at $113 and higher live basis and $176 and higher dressed. Although active trade may not develop until later in the day, or even sometime Friday, the stage may be set for steady to higher money given the firming of futures trade earlier in the week. Futures are expected to remain mixed to firm early in the session although light activity will most likely encompass most of the morning trade.

Lean hog futures trade will be focused on active support in nearby contracts once again with firm support in cash hog values, which continues to develop across the complex. This will likely help to draw increased buyer support through the complex as stability is likely to be seen through processing schedules over the end of the week with an estimated 460,000 head estimated each day Thursday and Friday. Aggressive processing schedules each day continue to push packer's capacity to the limit as they focus on margins.

BULL SIDE BEAR SIDE
1) Live cattle futures continue to steadily and aggressively build open interest positions over the last week. Total open interest in live cattle futures is now at 330,000 contracts, with nearly 3,500 contracts being added to each of the last three trading sessions. This is helping to spark renewed firm gains in nearby and deferred futures contracts. 1) Boxed beef values weakened under pressure midweek, creating uncertainty about the ability to draw follow-through support through the end of the week in cash and futures trade.
2) Summer 2018 live cattle contracts are trading at contract highs, which have sparked additional buyer support and have broken through resistance levels. This is expected to draw additional commercial and investment buyer support back into the complex, not only in these contracts, but all live cattle futures. 2) Even though sharp gains developed early in the week in live cattle futures, the inability to follow these moves higher, is causing some concern that trade has hit major resistance in both live cattle and feeder cattle futures. This could limit follow-through buyer activity through the rest of the week.
3) Strong continued buyer support continues to develop in the cash lean hog trade. Steady to $1.50 per cwt gains are expected to develop through early Thursday, which may spark additional underlying support. 3) Pork values eroded midweek as sharp pressure developed in ham and belly values on the pork cutout report. This creates concerns that even though cash hog prices and futures trade has ratcheted higher, the inability for pork values to follow will not allow markets to remain sustained for long.
4) Firm commercial buyer support quickly moving into the lean hog futures market has helped to draw additional buyer activity in nearby contracts, pushing October contracts above $61 per cwt for the first time in over a month. It is also drawing increased buyer support in other winter contracts. 4) Given that traders have pushed front-month October futures above $61 per cwt once again and strong buyer support has quickly moved into the market, traders may be focusing on this market ripe for a correction given the resistance in the market. The potential for downward price movement outweighs upward shifts at this point.


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

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Rick Kment

Rick Kment
Connect with Rick: