DTN Early Word Livestock Comments

Firming Market Tone Expected as Week Draws to a Close

Rick Kment
By  Rick Kment , DTN Analyst

Cattle: Steady w/early-week trade Futures: Higher Live Equiv $132.86 -0.27*

Hogs: Steady Futures: Mixed Lean Equiv $ 72.01 -0.04**

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

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

General Comments:

Limited additional cash cattle activity is expected during the day Friday, although a few clean-up deals may trickle into the market through the day. Cash trade for the week has remained generally stable the whole week, with prices generally steady to $1 per cwt live and $1 to $5 per cwt higher dressed than last week's average. But not moving significantly from when trade started to develop Tuesday. The lack of daily wide market swings is bringing much needed market stability into the complex. Although there is plenty of market-ready cattle still backed up in the system, the pulldown of market weights indicates that packers continue to be efficiently getting through these cattle supplies. This is giving hope that seasonal lows may have been set last week, but it is going to take consistent cash market support through the rest of July before most are willing to let their guard down. Futures trade is expected to remain firm early Friday morning. Even though gains remained light to moderate, the ability to hang onto higher prices, and increased focus on increased buyer support in late 2020 contracts, helps to rekindle the idea that better times are ahead. Firm feeder cattle trade also helped to create underlying support and market calmness, although some additional end-of-week positioning may create choppy market moves Friday with short-term price direction less certain as trade opens. Friday's slaughter is expected at 118,000 head.

Strong underlying support in nearby lean hog futures Thursday continues to give a breath of fresh air to the hog complex. Although nearby hog contracts are still well below breakeven levels and pricing points most would have hoped for this time of year, it cannot be overlooked that prices have been able to move off long-term lows. August futures closed above $50 per cwt for the first time in two weeks. The ability to hold Thursday's rally into the weekend could help create confidence that a market low has been set, sparking potential additional commercial and noncommercial buyer interest, which has until now remained on the sidelines waiting for a market bottom. The lack of support in deferred contracts still puts the emphasis on uncertainty about pork demand over the next year, but as the industry continues to work through the glut of market-ready hogs available, the focus on price support become more evident. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Friday is expected at 459,000 head. Saturday runs are expected at 278,000 head.

BULL SIDE BEAR SIDE
1)

Firm gains in live cattle futures Thursday, especially late 2020 and early 2021 contracts are helping to rekindle buyer support with the potential of further firm gains developing at the end of the week.

1)

August live cattle futures are still unable to move above the $100 per cwt threshold with limited short-term support developing in the complex. This could keep summer contract prices contained within a narrow and tightly traded sideways pattern over the near future.

2)

Cash market stability, which developed through the week, is putting the focus on the potential to bring additional cash market support back into the complex through the remainder of July. The ability to establish summer lows during the first week of July would create significant market shifts that could spark renewed interest through the rest of the summer.

2)

Feeder cattle futures have continued to slowly shift the market trend higher, but the lack of premium in the entire complex is expected to limit long-term price support. September through March 2021 contracts are contained within a $1.50 per cwt price range, causing concern that the current market trend could be carried through next spring.

3)

Sharp cash market gains developed Thursday with active negotiated trade levels. The ability to post a $1.09 per cwt rally in cash values with nearly 15,000 head traded is putting increased focus on the need for packers to aggressively gain access to additional hogs.

3)

Limited long-term support is in lean hog futures trade despite the recent rally in nearby contracts. This is putting the focus on demand uncertainty in domestic and export markets that could continue well into 2021.

4)

Active packer schedules coming out of the holiday week, and consistency in daily slaughter numbers is helping to steadily reduce the expected number of hogs waiting to be processed during July. This is expected to continue to work through the backlog of hogs in the system, focusing on establishing market currency.

4)

Light trade volume is expected to develop Friday, which could cause traders to back away from recent gains in nearby contracts. A close below $50 per cwt in August contracts at the end of the week could limit market optimism next week.

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Rick Kment