DTN Early Word Opening Livestock

Cattle: Steady   Futures: Lower   Live Equiv: $149.26 -1.14* 
Hogs:   Lower    Futures: Mixed   Lean Equiv: $ 88.93 +1.93** 
*   based on formula estimating live cattle equivalent of gross packer revenue 
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Technical weakness has dominated the cattle market. The market is severely oversold, but support remains elusive. The weakness has stemmed from lower cash this week with cash prices falling from $3.00 to $5.00 per cwt. Spillover selling from feeder cattle is affecting live cattle and vice versa, which continues to feed the selling frenzy. Futures could stabilize or bounce into the end of the week, but that may take a monumental effort and some friendly news to trigger short-covering. That seems unlikely based on the steep declines of the past two weeks.

May and June hogs showed significant price divergence as spread trading was evident. It did not take much to cause the divergence due to trading volume. There were only 552 futures contracts traded in May Thursday compared to 28,361 contracts in June. However, October 2019 through April 2020 contracts showed substantial losses as well. Traders still remain hopeful China will purchase more pork in the near-term, but traders are cautious over prices later in the year.

	BULL SIDE		BEAR SIDE
1)	It is the end of the week and the magnitude of the sell-off could trigger some profit-taking into the weekend. This would relieve the oversold technical situation.	1)	The cattle market appears to be bottomless with buyers continuing to be run over. The market is severely oversold, but the path of least resistance is down.
2)	Most of the cash activity is finished for the week, which could bring back some optimism as feedlots look to next week. Even the idea cutouts could stabilize next week might improve the resolve of feedlots to hold for higher prices, which could support futures.	2)	Cash trade is mostly wrapped up for the week, and there was a lot of blood -letting. Cash trade $3.00 to $5.00 lower than the previous week does not bode well for next week.
3)	Hog futures have not declined as dramatically as cattle and seem to have found some price support on China demand and potential for further purchases.	3)	Despite June hogs posting triple-digit gains Thursday, surrounding contracts are struggling to maintain upward momentum. Lower cash on the National Daily Direct report Thursday may keep a lid on price potential.
4)	Hog futures bounced off support early in the week with three consecutive days of gain in the June contract. A surge in pork cutout values should continue to support the market.	4)	The absence of additional pork sales to China on the weekly Export Sales report may reduce the desire for traders to aggressively buy futures positions due to business with China being very inconsistent. Traders may need hard evidence before becoming more aggressive.

Robin Schmahl may be contacted at rschmahl@agdairy.com

(BAS)

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