DTN Early Word Livestock Comments

Cattle: Steady to Higher Futures: Higher Live Equiv $131.82 +0.21*

Hogs: Steady Futures: Mixed Lean Equiv $ 70.39 -2.09**

* 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 interest and activity is expected to remain quiet through most of the morning Monday. Following higher cash cattle trade last week with sales reported generally $1 to $2 per cwt higher, and firming support in futures trade, higher cash market expectations are evident in early August. It will be interesting to see how the weekly average cash cattle trade ends up last week once morning reports are released Monday. Firm gains in cash cattle trade last week will likely build on the momentum seen in July and carry the positive market shifts into August. Cattle supplies are expected to remain readily available, although there is less focus on the backlog of cattle, limiting market concern for the time being. The expectation that beef values will be able to find some much needed support during the next couple of weeks as traders and consumers move away from summer demand and look toward schools reopening and Labor Day, which could draw further support to beef values. Futures trade is expected higher following the break above short-term resistance levels Friday in spot month October contracts. This move is expected to create follow-through support in the complex, although mixed trade is possible through the morning as traders adjust positions following the first of the month. Feeder cattle futures surged higher Friday, moving to the highest price levels since February. This breakout from the choppy but sideways market trend over the last month is likely just what the feeder cattle market needed to focus on higher late-summer price levels. It is uncertain if futures will take advantage of the recent technical support through early August. Monday's slaughter is expected at 119,000 head.

Firm gains Friday in lean hog futures is still not able to create significant confidence in the entire hog complex, and break prices away from the weaker sideways market trend. Active hog slaughter numbers have continued to develop, although packers continue to struggle with labor issues, but this has generally kept the market current with average hog weights steadily declining over the last three months. The fact that hog weights and overall hog numbers are well above year-ago levels is no surprise to anyone in the industry, but it does limit the upside market moves as concerns of further demand growth in the pork industry remain. Export demand to China has remained generally strong through the summer months, although continued tensions between the two countries seem to be limiting additional optimism when it comes to greater volumes of pork moving into China. Continued increased COVID case numbers through the U.S. has also created questions of pork demand growth through the fall and winter months. If additional restrictions are once again put into place, recent gains in food service demand will quickly erode. At this point, it is uncertain how retail buying will react to further restrictions as consumer reactions are likely to be different in "round two" if shut downs develop, but it is still too early to tell what those reactions will be. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Monday is expected at 475,000 head.

	BULL SIDE		BEAR SIDE
1)	Boxed beef values may have finally turned the corner and hit seasonal lows through the end of July. A firm gain in choice boxed beef values Friday may help to spark renewed underlying support in beef values during early August.	1)	Growing concern of short-term economic direction over the coming months as many are still focusing on the rise of COVID cases will likely significantly impact beef demand growth through the fall and winter months.
2)	Feeder cattle futures have quickly broken out of the sideways trading pattern following an aggressive move through resistance levels seen Friday. This has pushed nearby feeder cattle futures to multi-month highs, with the potential for additional gains developing in early August.	2)	Despite recent strong gains in feeder cattle prices, seasonal highs typically develop in late summer, creating a potential market top around $146 per cwt in nearby futures contracts. This could limit further gains through the end of the year, despite expected supply tightness heading into early 2021.
3)	Active pork slaughter rates through the month of July have continued to chip away at the burdensome hog supply available through the summer. This is helping to establish a more current hog market, with average weights expected to decline from previous weekly levels.	3)	Nearby lean hog futures continue to trade near the bottom end of the market range. The inability to maintain significant support in nearby contracts is based on current hog supply levels and concern about pork demand growth through the end of the year.
4)	Strong gains in nearby lean hog futures last Friday has helped to curb recent market losses and may establish a short-term market low in all nearby contracts. The ability to build on this price momentum through early August would be huge in changing the direction of price moves through early fall.	4)	Following strong gains in cash hog prices over the past week, this momentum is quickly fading, as packers are able to gain access to ample hog numbers due to the recent price bounce. This could quickly limit further price support and even the stability of cash values during early August.

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

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