DTN Early Word Opening Livestock

Continued Hog Gains Expected

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

Cattle: Steady Futures: Steady Live Equiv $138.00 -1.41*

Hogs: Steady to $1 Higher Futures: $1 Higher Lean Equiv $ 72.70 -0.18**

* 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 has once again been delayed until the end of the week with packers and feedlot managers managing to hold out until Friday. Bids should increase through the day because packers need access to cattle for deliveries through the next couple of weeks, but the lackluster interest in futures trade, and pullback in beef values late in the week, will make it difficult to argue a case for firming market trends. Feedlots are unwilling to erode price levels furtheras this point, although getting cattle out of lots in the event of further market erosion has caused some longer-term concern. Bids are expected to redevelop from $105 to $107 live, and $170 dressed early Friday, but asking prices remain $4 to $6 per cwt above these levels.

Firm price support in lean hog futures is expected through the end of the week with cash hog bids steady to $1 per cwt higher. Most bids are likely to be 50 cents higher as traders look for increased overall movement in the near term. Lean hog futures are expected to point to additional long-term buyer support from last week. Although the news reports of African swine fever in China seems to be the hot topic as of late, it is still hard to determine to what extent if any this will have on overall price levels both short and long term. It is very hard to get an accurate handle on how big this problem is or the potential issues, and if it will have a global impact in markets; or if gains are based more on headlines chasing in the market. The market has remained oversold and is near the bottom of the trading range, even a sustained strong market move would show little to no technical changes in the market at this point.



BULL SIDE BEAR SIDE
1)

Live cattle futures continue to hover in the top 1/3 of the range that has been contained through the summer months. The continued sideways trend is expected to continue through most of the fall months, allowing prices to focus on potential fundamental support.

1)

Strong pressure in beef values has created some additional underlying concerns through the entire beef complex. The inability to continue to move aggressive amounts of beef through the next couple of months would sharply damage overall buyer support.

2)

Strong premiums continue to be maintained and expanded through deferred futures with April futures holding a near $11 premium to the front-month October futures complex. This is helping to spark some additional long-term interest through the complex.

2)

Limited interest continues to develop in cash cattle trade late in the week. Although a trend is yet to be set with just a few cattle trickling into the market over the last few days, the overall support remains weak, potentially setting up additional cash market pressure at the end of the week.

3)

News coming out of China surrounding the African swine fever, is sparking some recent market support. The ability to focus on any potential of pork production losses is creating some excitement in the market.

3)

Sharp gains seen in front-month October futures continue to be attributed to China's African swine fever situation. There is a lack of support as most of the recent buying activity has been limited to spot-month contracts, but that is setting up a bandwagon chasing scenario, as there is still little solid evidence on how much of an impact this will really have on not only the global market, but specifically the domestic pork values.

4)

Strong gains in front-month October futures have sparked some additional support in all 2018 contract months. This has pushed December futures past August highs as traders continue to try to work out of the extreme pressure from the last month. Limit gains in October contracts could spark additional wide gains with expanded trading limits now in place.

4)

Even with the $3 per cwt limit gain on Thursday, spot-month October futures remain extremely discounted to other nearby contracts. October futures are trading nearly $16 per cwt under the April 2019 futures contracts, and $26 per cwt under summer 2019 contract months. The strong discounts in spot month markets are expected to continue over the near term, focusing on current production levels and questionable demand.

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

(BAS)

Rick Kment