DTN Early Word Opening Livestock

Firmness in All Livestock Trade Sparks Hope for Stability

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

Cattle: $2 to $3 Lower Futures: Higher Live Equiv: $146.58 -1.73*

Hogs: Lower Futures: Mixed Lean Equiv: $ 90.64 +2.78**

* 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 Tuesday, allowing for light to moderate trade through the South and limited trade through the North. Prices have fallen $2 to $3 per cwt from last week's levels, with live trade mostly $120 and dressed trade at $195 to $196 per cwt. The deviation from Friday trade the last several weeks is starting to create a more regular focus on cash trade out of the gate during the first half of the week. Although some additional trade is expected, especially in the North, the tone of the market is likely set for the week. Futures trade is expected to remain mixed to mostly higher with traders focusing on follow-through buyer interest following the stability Tuesday. The cattle complex remains oversold, and this should spark increased fundamental demand at these price levels as well as technical support with the ability to sustain and build off of long-term support levels through the live cattle and feeder cattle complex.

Sharp early-week losses in lean hog futures has brought uncertainty to the entire lean hog complex. This is sparking additional underlying pressure in June futures as traders try to establish renewed interest that can last more than a couple of trading sessions. The overall bullish focus of demand support moving to China to replace pork lost due to African swine fever may help to spark some additional interest, but traders are looking for evidence of this in the upcoming Export Sales report on Thursday. Trade is expected mixed through the morning with light-to-moderate initial trade across the complex. More active interest is expected following increased volume later in the day as traders look for a sense of market stability. Cash trade is called steady to $1 lower Wednesday morning with most bids steady to weak. Expected slaughter Wednesday is at 473,000 head. Saturday runs are expected at 18,000 head.

BULL SIDE BEAR SIDE
1) Strong triple-digit gains on Tuesday in feeder cattle trade has helped to establish short-term support levels in feeder cattle trade. This is creating hope for follow-through support the next couple of weeks. 1) Wholesale beef values tumbled sharply lower Tuesday with active pressure in both choice and select cuts based on overall supply levels on the market. This may spark some additional pressure in the near future due to unsettled futures and cash market direction.
2) Market gains Tuesday in live cattle futures are creating the potential for support levels to be set early in the week. This is likely to spark some additional buyer activity through the remainder of the week. 2) Continued weakness in futures trade early in the week is creating overall market pressure in the entire cattle complex. Sustained buyer interest is needed the rest of the week in order to break out of the nosedive in the cattle complex the last three weeks.
3) Sharp triple-digit gains flooded into wholesale pork values Tuesday, creating the potential for additional follow-through buyer interest at the end of the week. 3) Continued uncertainty surrounding a trade deal with China is casting a shadow over the entire market. Even though trade talks are expected this week, the consistent and continued nature of the talks has many losing hope that a deal can be quickly reached.
4) Expectations of China sales are once again heavy on trader's minds as we inch closer to the Thursday export sales report. A strong weekly sale to China would likely to spark additional underlying price support. 4)

Overall cash market weakness is expected to continue through the end of the week with packers starting to slowly limit overall procurement levels in order to curb needed supplies and limit increased spending. As packers focus on rebuilding plant margins, cash values will likely continue to erode.

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

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Rick Kment