DTN Early Word Opening Livestock

Cattle: Steady   Futures: Higher   Live Equiv: $152.62 +0.38* 
Hogs:   Steady   Futures: Mixed    Lean Equiv: $ 91.39 -0.51**
*   based on formula estimating live cattle equivalent of gross packer revenue 
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Firm underlying support in the entire live cattle trade Tuesday is expected to create follow-through buyer support midweek. With markets closed Friday due to Good Friday, additional market activity is expected the next two trading sessions. Strong gains in June and August futures have moved prices through April highs set in the first week of the month. But the complex remains stuck within the wide sideways pattern established through the spring. With temperatures warming, the focus is returning to seasonal beef demand, which is expected to draw additional support. Cash cattle activity is still undeveloped, but given the trend the last three weeks, the potential of sparking light midweek trade is on the minds of feeders and packers. Packer bids should start to develop at some point Wednesday, with asking prices becoming more readily available at current prices of $130 live and $208 dressed.

Movement in the lean hog complex Tuesday appeared to have a slightly bi-polar appearance with late-day pressure sweeping through nearby contracts, while aggressive follow-through support developed in deferred contracts. There is still a market separation between market fundamentals and expectations where long-term price levels will move. Most of this uncertainty and separation continues to be the extreme bullish expectation of being able to sell pork to China. China continues to need pork due to the outbreak of African swine fever, but it is uncertain as to just how consistent and aggressive this buying will be. The moves this week have created significant support in December 2019 through the 2020 contract months, which has allowed for triple-digit gains in each contract. This is creating the expectation of continued support the rest of the year, although current fundamentals are not following that pattern yet. Cash trade is called $1 lower to 50 cents higher Wednesday morning with most bids steady. Expected slaughter Wednesday is at 476,000 head. Saturday runs are expected at 89,000 head.

   
    
     
      
BULL SIDE
      
BEAR SIDE
     
     
      
1) Firm underlying futures support has quickly moved into nearby contracts, allowing June futures to post a $1.50 per cwt rally during the week. This is sparking increased interest through the entire complex.
      
1) Limited cash cattle interest early Wednesday is creating uncertainty about how aggressive packers will be going into the long weekend.
     
     
      
2) Strong pressure in grain trade and feed prices early in the week has allowed for additional underlying support to move into feeder cattle trade based partially on lower production costs.
      
2) Estimates of larger cattle placement, increased cattle on feed and lower marketing levels in the upcoming Cattle on Feed report could add additional pressure to the entire complex.
     
     
      
3) Aggressive triple-digit gains in late-month contracts continues to put the emphasis on a long-term shift in the hog complex based on meeting world demand following African swine fever.
      
3) Sluggish moves in pork values Tuesday seem to have calmed the aggressiveness of the market as traders look for increased fundamental support before entering the market the next two days.
     
     
      
4) Traders continue to expect follow-through buying from China in Thursday's Export Sales report. This could provide additional widespread market support going into the extended weekend break.
      
4) The strong market pullback in nearby trade late Tuesday is partially driven by positioning, but there is growing concern that fundamentals may not be able to support the overall bullish expectations built into the market. This could create increased pressure through the end of April.
     
    
   

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

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