DTN Early Word Opening Livestock

Continued Pressure Likely Midweek

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

Cattle: Steady Futures: Mixed Live Equiv $137.16 -0.26*
Hogs: $2 Higher Futures: Lower Lean Equiv $74.19 +1.39**

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

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

GENERAL COMMENTS:

Limited cash cattle activity is expected to be seen early Wednesday morning. Bids are expected to be refloated in several areas with prices likely to be $168 to $170 per cwt, which is the same range as seen Tuesday. Even with bids becoming more evident through the day, asking prices are not fully defined as of yet, and likely to push active sales off until later in the week. The focus in futures trade is likely to be placed on the developments surrounding the USDA supply and demand reports, with grain markets taking a more prominent role, and allowing livestock markets to wander in a potentially mixed range once again.

Follow-through cash buying activity is expected to redevelop across the hog complex with bids likely to be $1 to $3 per cwt higher with most bids $1 to $2 per cwt higher. The overall support across Hurricane Florence is expected to have a major impact on hog production and overall processing schedules in the area. Depending on when and where the storm makes landfall, and the amount of rain and flooding seen will significantly affect the ability to process hogs and maintain pork supplies through the region. The complex may continue to add to underlying movements in the futures trade, but it is unlikely that aggressive market support will develop early Wednesday. The focus on firm pressure seen Tuesday will likely create a combination of follow-through selling pressure and short covering during the initial minutes and hours of trade Wednesday morning.

BULL SIDE BEAR SIDE
1) Even though front-month October futures continue to remain firmly entrenched in a sideways trading range, early 2019 contracts are nearing resistance levels to break out of the month-long range. With February futures at $18.40 per cwt, a move above $18.90 per cwt would spark some additional underlying support as traders move through August highs. 1) The development of Hurricane Florence, which is about to make landfall over the next couple of days is expected to disrupt overall meat demand in the area. This may have a longer-term impact on overall beef movement through the coming days and weeks.
2) Early interest by packers in the market indicate the need to gain access to additional cattle through the end of the week. This may help to stimulate additional market activity which would be able to elevate cash markets at the end of the week. 2) Beef cutout values continue to quickly erode with follow-through pressure developing in choice and select markets. Despite the stability seen in futures trade, concerns of post-Labor Day market pressure may add even more weakness to beef values.
3) Cash hog values have surged once again through early-week trade with packers becoming more aggressive to gain access to market ready hogs. Even with daily procurement levels near 470,000 head, packers keep pushing price levels higher in order to secure needed hogs. 3)

Lean hog futures trade remains extremely weak, focusing on the inability to bring traders back to the table despite strong recent moves in cash hog values and pork values. This may add follow-through pressure to the entire complex, with buyers hovering on the sidelines waiting for more market definition.

4) Strong gains have continued to develop through pork values with strong triple-digit gains seen Tuesday. This may add even more underlying support to the entire complex as traders focus on the potential of firming domestic demand. 4)

Front-month lean hog futures continue to hold an aggressive discount to deferred markets with October futures trading $25 per cwt lower than summer contracts. The focus on current supplies is likely to keep most traders unwilling to aggressively move into the complex.

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

(BAS)

Rick Kment