DTN Early Word Opening Livestock

Follow-Through Pressure Developing Friday

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

Cattle: Steady $2 HR Futures: Steady to $1 LR Live Equiv $132.66 - 0.49*

Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 78.97 + 0.15**

* 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 started to develop Thursday afternoon with live cattle trade developing in the South and parts of the North at $111 while dressed trade was reported at $175 per cwt in Nebraska and Iowa. These prices were generally $2 per cwt higher than last week's price levels, and has likely set the tone for the week, but the pressure in the futures market may limit overall pressure through the complex. Futures are expected to open weaker given the tone of the market Thursday.

Lean hog futures are expected to develop under a weaker tone as the futures have been unable to break through resistance over the week and bearish market tones have set into the complex. There is additional market pressure developing in futures trade, although cash market support is expected to continue through the complex. Cash trade is expected to be steady to $1.50 per cwt higher early Friday with an expected run rate of $460,000 head developing through the day and 240,000 head on Saturday.

BULL SIDE BEAR SIDE
1) Cash cattle trade started to develop Thursday with higher prices moving into the market once again. This movement once again focused on the ability for packers to pay higher prices for cattle through the month of October despite the fact that long-term supplies remain strong. 1) The triple-digit market slide in the complex has quickly limited the overall outlook of the live cattle market. This could break away from the long-term direction of the market and could quickly pull some commercial traders back from the market.
2) Open interest in live cattle futures continue to aggressively expand with traders quickly moving into the market at the end of the week. Even with prices eroding, active interest continues to move into the complex. This may help to still develop long-term interest through the overall cattle market. 2) The pullback in futures trade will quickly limit any additional cash cattle trade activity expected to develop in the market through the end of the week. Even though additional packer needs have to be met, it is likely that they will not be additionally aggressive when it comes to price given the new futures price levels compared to where markets started Thursday morning.
3) Open interest in lean hog futures has started to improve following a pullback over the last couple of weeks. This is helping to draw additional commercial traders back into both nearby and deferred contracts and bringing support into the entire complex, which could provide long-term support. 3) Pork values have had a hard time making significant progress over the last week, with significant price shifts in several primals, but the volatility in other markets has created an overall steady market. This is leaving a generally soft pork market, and causing some traders to remain uncertain about further market support.
4) Cash market support continues to develop through the end of the week in lean hog futures with early expectations likely to be seen as much as $1.50 per cwt higher as traders focus on end of the week buying activity for aggressive procurement needs. 4) The pullback in futures trade has created concern by some traders in nearby futures early Friday. This may limit overall trade activity and cause follow-through liquidation.


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

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Rick Kment

Rick Kment
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