DTN Early Word Livestock Comments

Active Pressure Likely Following Boxed Beef Market Tumble

Rick Kment
By  Rick Kment , DTN Analyst

Cattle: Steady Futures: Lower Live Equiv $293.10 -7.01*

Hogs: Lower Futures: Mixed Lean Equiv $122.30 *4.39**

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

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

General Comments: Light-to-moderate cash cattle trade developed Wednesday with Southern live prices at $110 to $115 per cwt. This is steady to $5 per cwt lower than last week's market highs seen Friday, but likely will hold above the weekly average if additional trade volumes hold within the current range. Dressed trade is reported at $168 to $185 per cwt, but it is uncertain just how much additional trade will be seen through the week, or where prices will land with the focus on the recent pressure in boxed beef values. With beef values posting record losses for single-day moves Monday, additional widespread pressure in the boxed beef market is a concern while adjusting to a disconnected market structure, given the fact that beef values have doubled in the last month. Choice cutout prices gained $250 per cwt. The current market pullback seems like just the tip of the iceberg to where prices may be heading over the near future. Boxed beef prices have been severely disconnected with both cattle prices and retail beef prices through the last month, and it seems like as packer schedules slowly creep higher, the time to realign prices is starting. Futures trade is likely to follow through midweek losses as the wide volatility is adding increased uncertainty to the market. Thursday slaughter is expected at 93,000 head.

The weaker tone in all livestock markets Wednesday is leading to additional market uncertainty. Traders will once again focus on the weekly export sales report for a sense of trade activity with China, but this is not expected to break the weaker market trend as traders look at still burdensome hog numbers needing to be processed over the near future. Even though packing plant production is slowly increasing, the backlog of market-ready hogs through the country will likely keep markets from showing significant short-term support. As more focus is placed on reopening restaurants around the country, the focus on increasing pork demand will once again be closely watched. Cash hog bids are expected $1 lower to 50 cents per cwt higher with most bids steady to 50 cents lower. Slaughter Thursday is expected at 368,000 head. Saturday runs are expected near 239,000 head.

BULL SIDE BEAR SIDE
1)

Growth in overall consumer demand for beef is likely to continue as restaurants are starting to reopen on a limited basis around the country. This is likely to not only focus on increased beef demand, but more focus on the higher end cuts as consumers try to find a sense of normalcy as they dine out for the first time in several weeks.

1) Record losses in choice and select beef cuts midweek may be the trigger that could bring the skyrocketing beef values back to a more normal level. Although this could create significant follow-through damage through the rest of the markets, and market realignment is needed.
2)

Steady-to-higher cash cattle trade, which has developed early in the week, is expected to help sustain the higher prices through the end of the week as packers continue to look for additional short-term needs as production levels increase daily.

2)

The lack of support in live cattle futures and inability for widespread gains in retail beef prices still is keeping current boxed beef values disconnected with the rest of the industry. This will continue days to potentially weeks to get prices back to a normal relationship.

3)

Pork cutout values bounced higher late Wednesday despite the pressure in futures trade and weakness in boxed beef values. This is pointing to increased potential for strong consumer demand redeveloping in the food service industry.

3)

Widespread pressure in lean hog futures trade Wednesday may set a weaker tone for the complex. Although prices still remain well above support levels, the concern that spot prices may not be able to hold levels above $60 per cwt could spark follow-through selling pressure.

4)

Expectations of another moderate-to-strong week of export sales to China could help to limit downward market pressure seen midweek. The ability to focus on active buying during early May could spark renewed underlying support through the entire complex.

4)

Trades are now starting to question long-term export levels to China with President Trump bringing up the dreaded "tariff" word once again over the past several days. This could further limit active support in the pork market based on long-term instability of export demand.

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

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Rick Kment