DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv $256.86 +17.25*

Hogs: Higher Futures: Mixed Lean Equiv $112.84 + 1.20**

* 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 activity remains quiet with larger showlists a shock to no one given the limited overall cash cattle trade and reduced packing ability over the last few weeks. Bids and asking prices are likely to be hard to pin down through most of the day Tuesday with significant trade likely in the last half of the week. This delayed activity could help to sustain additional cash market interest given the overall support in futures and wholesale beef values. But until significant increases can be seen in plants throughput, the need for packers to aggressively step into the cash cattle markets will remain limited. The focus on potential efforts by all major packers not only to keep plants running but to ensure the safety of employees continues to be the main focus of media attention and could help to dig the industry out of the deep ditch over the last few weeks. Traders seem to be feel that the worst is behind us, with follow-through buyer support still moving into the market. This could help to spark some additional underlying futures support during the week, but improvements in packer capacity has to be seen in the coming days for traders to continue to have faith that this will turn around quickly. The surges in boxed beef values are starting to become more unrealistic at this point and even more disconnected between cattle prices and retail values. Even if the wholesale price levels were fully worked through retail levels, this type of price jump has the potential to cut off much retail demand due to price increases. Choice boxed beef values have nearly doubled in the past three weeks, moving from $226 per cwt on April 13 to $410 per cwt Monday. Tuesday slaughter is expected at 83,000 head.

Firm follow-through support early in the week continues to build the framework for increased overall support in the complex. This may add increased underlying buyer interest as the week continues, but traders are needing to see that the implementations done at plants are able to increase overall production levels and create sustained processing growth in order to ensure workers safety. Technical support is developing in nearby lean hog futures trade, with June futures gaining over $22 per cwt in the past three weeks. The underlying support is based on continued domestic demand for pork and the potential that changes in the industry can sustain strong food supply levels for the short- and long-term needs of the country and world. Cash hog bids are expected 50 cents lower to $1 per cwt higher with most bids steady to firm. Slaughter Tuesday is expected at 305,000 head.

	BULL SIDE		BEAR SIDE
1)	Aggressive moves higher in boxed beef values has helped to sustain additional support in early week futures trade. The potential that the price spread between wholesale markets and cash cattle prices will narrow quickly, is causing underlying support in the complex.	1)	The surging wholesale beef values is creating more questions than answers over the last few days. The main question is if the gains in wholesale beef values are even able to be worked through the retail market without totally shutting off demand due to consumer price shock. And if retail prices do move higher, how will changing demand affect wholesale beef values in the coming weeks and months. .
2)	Firm technical support is still being built through nearby live cattle and feeder cattle futures. Spot June futures are now trading $8 per cwt above long-term lows, and have rallied over $5 per cwt in the past couple of weeks. This building support is helping to bring additional trade interest to the table during early May.	2)	Despite price support in futures and beef values, the limited production lines still leave a significant disconnect in cattle country. With feedyards full of market-ready cattle needing to find a home, there still remains price pressure in the cash markets due to limited production capacity.
3)	Lean hog futures are quickly rebounding with prices quickly surging higher the past three weeks. The underlying technical support continues to grow, as June futures moved above $65 per cwt for the first time in over a month.	3)	Even with plants doors open and accepting hogs, the capacity at these plants will continue to be well below previous levels, limiting the amount of hogs moving from barns over the next few days and weeks. This will be a longer-term issue as packers try to create stability in the market.
4)	Continued focus on pork plants reopening with limited schedules is forging the path to regain needed production levels. There is still a long way to go to get back to what is considered normal, but with hogs moving through plants in several locations is a better sign than seen in the past two to three weeks.	4)	The strong market surge in the last couple of weeks is leaving the lean hog complex ripe for a market correction. This could lead to additional underlying weakness in the coming days, establishing a well-defined sideways market trend.

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

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