DTN Before The Bell Livestock

Buyers Return to Cattle Complex in Early-Month Support

Rick Kment
By  Rick Kment , DTN Analyst
(DTN photo by Nick Scalise)

GENERAL COMMENTS:

Mixed trade developed early Wednesday morning with firm cattle buying sweeping through the complex, although light to moderate losses were evident in lean hog trade. Morning trade offset a portion of Tuesday's end-of-month and -quarter position adjustments as traders get back to current market concerns and the long-term direction of the complex. Corn futures are trading higher in light trade. Stock markets are higher in limited morning trade. Dow Jones is 110 points higher with NASDAQ up 19 points.

LIVE CATTLE:

Open: 20 to 80 cents higher. Firm early-month activity is quickly moving into all nearby lean hog futures trade with August futures leading the shift higher with 80 cent gains in the early minutes of activity. With June futures expiring Tuesday, the focus that August contracts are the official front-month contract has sparked increased trade activity with prices moving above $97 per cwt during morning trade. All other contracts have moved above $100 per cwt, which is more of a physiological factor than technical price point at this point, but the fact that price levels have hit these levels during the 1st trading session of July is helping to spark underlying support. The potential of tight cattle supplies through the end of the year continues to hold firm market premiums in live cattle trade, although concerns of beef demand growth is still a major factor that could limit additional long term gains. Activity in cash cattle trade remains sluggish midweek. Although it will be interesting if there is any more direction in the market during early July, the establishment of wide trade ranges so far this week could leave markets focused on inconsistent trade levels through the rest of the week. It is likely that both sides will want to wrap up trade before Friday, but the slow trickle of trade seen so far this week could indicate that markets remain unsettled and inconsistent through the end of the week. Open interest added 44 positions (275,097). June contracts lost 259 positions (58) and August contracts fell 1,637 positions (127,734). DTN projected slaughter for Wednesday is 121,000 head.

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FEEDER CATTLE:

Open: 30 to 75 cents higher. Despite continued strength in corn and soybean meal prices which will create a significant impact in overall production costs of cattle moving into feedyards through the summer and fall, feeder cattle futures have rallied higher based on underlying support in live cattle trade. With traders now closing the book on June and the 2nd quarter, there is growing optimism that better times are ahead for the cattle complex, although the current supply levels will likely limit any significant upside price support over the near future. But the evidence that renewed hope is seen in the complex has helped to spark firm buyer support as increased open interest is expected to be seen through feeder cattle trade over the coming days. Cash index for 6/29 is $129.42 down 0.26. Open interest Tuesday added 517 positions (36,744).

LEAN HOGS:

Open: Mixed. Lean hog futures continue to remain caught between uncertainty of strong buyer support based on the current amount of hogs available to the market and struggling pork demand, and already depressed price levels which will likely keep further losses in check. The strong support seen Tuesday in lean hog futures was focused on deferred contracts, and although this gives a little hope for long term market direction, the burdensome supply levels expected through the rest of the summer will make it hard for nearby contracts to rally higher. Spot August futures are hovering just above contract lows, which keeps traders closely monitoring every little market shift in the coming days, focusing on the potential to establish support levels at $48 per cwt during early July. Cash hog trade is called $1 lower to 50 cents higher. Most bids are steady to firm. Open interest added 5,682 positions (225,286). July fell 100 positions (20,037) and August gained 925 positions (85,436). Cash lean index for 6/29 is $45.24, up 0.01. DTN projected slaughter for Wednesday is 468,000 head. Friday runs are expected near 200,000 head with no slaughter scheduled for Saturday

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

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Rick Kment