DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv $238.17 -5.37*

Hogs: Steady Futures: Mixed Lean Equiv $ 93.85 -8.62**

* 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 has continued to trickle in through the week and some additional movement is likely to slowly develop through the end of the week. Prices continue to hover in similar ranges as last week, but wide price ranges will still make it hard to determine where the average price may be. Ranges from $110 to $120 live and $175 to $190 per cwt dressed have been reported through the week, and likely any additional trade will be within this range, but most likely on the higher end of the range if futures trade don't implode over the next couple of days. Overall cash activity has continued to see larger than usual amounts of head sold, which means packers are passing higher prices on to cattle feeders, knowing the Department of Justice Investigation is taking place. Even with firm triple-digit gains in live cattle futures the last two sessions, nearby contracts continue to hover at the $100 per cwt level. Although these price thresholds are important, as it is a major breakthrough to move back to triple-digit levels, a strong disconnect between futures trade and cash markets continues with strong basis levels still holding. It is unlikely that these basis levels will continue to defy the traditional ranges long term, but until the tensions of wide gaps between cattle prices and beef values narrow, little "normalcy" is likely to be in the cattle market. These current market price relationships makes it hard to make long term plans and risk management decisions given the unusual shifts in markets over the last couple of months. Thursday slaughter is expected at 112,000 head.

The firmness in lean hog futures early in the week seems to be uncertain with growing concerns surrounding China's dealing with Hong Kong and whether this will have an impact on trade relations not only with China but with Hong Kong in the near future. Mixed trade is expected to develop early Thursday, although the potential for wide market swings based on the emotions surrounding the potential shifts in export pork demand could bring about increased uncertainty. Although packer plants continue to steadily increase production levels, slaughter is still expected to remain well below pre-coronavirus levels, and this will likely continue over the upcoming weeks and even months given long-term changes in plant layouts to create more space between workers. But the fact that daily production continues to increase should not be overlooked, and could create long-term support as many feel that the worst is behind us. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids steady to $1 lower. Slaughter Thursday is expected at 415,000 head. Saturday runs are expected at 276,000 head.

	BULL SIDE		BEAR SIDE
1)	Live cattle futures have moved above $100 per cwt in all contract months, as renewed support has moved through the complex during early week trade. The ability to hold above $100 per cwt should create additional buyer support through the complex, sparking further market gains during early June.	1)	Continued strong pressure in beef values have continued to bring more focus on the disconnected market levels seen in the last month. It is uncertain how price connection will redevelop in the near future as these price relationships become more normalized over the coming weeks.
2)	Cash cattle trade continues to point toward increased price support as the week continues with prices hovering at $120 per cwt midweek with potential additional trade likely the next couple of days.	2)	Higher retail beef values that have started to sweep through the market the last couple of weeks has the potential to significantly curb consumer buying patterns given the "sticker shock" of most beef values. This could cause significant shifts in demand during summer months.
3)	Firm gains in deferred lean hog trade has helped to spark additional underlying support in the complex. This is causing increased buying interest into the market and adding overall volume to the market.	3)	Cash hog values have continued to show increased weakness as packers create more scheduled deliveries of hogs, relying less on the need for daily cash buying as longer-term schedules are being implemented once again.
4)	Continued gains in pork processing numbers has helped to relieve some of the long-term concerns about further shutdowns in the industry. Slaughter numbers are still far from normal, but well above recent lows, and increasing daily.	4)	Significant concerns remain about how the U.S. government will approach China and trade issues following the uncertainty and strain in Hong Kong. This has the potential to totally derail the trade agreement and upset pork exports to both China and Hong Kong.

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

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