DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv $133.51 +0.49*

Hogs: Lower Futures: Mixed Lean Equiv $ 77.02 +1.14**

* 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 remains undeveloped for the week at this point, with showlist distribution and inventory is the main focus through the day. But the move to and above $100 per cwt price levels expected to be seen in the weekly average when it is released, and it would be the highest price levels in six weeks and represent a continued move away from seasonal lows following the pandemic. Limited trade is likely Monday, although following the pattern of the last few weeks, some are looking for more direction from cash markets on Tuesday, and then further trade trickling into the market during the rest of the week. Market-ready cattle numbers still appear to be ample, although it is expected that the limited supply of feeder cattle moving into feedlots over the first quarter of the year will continue to show some supply tightness at the end of the year. There is an indication that some of these cattle are being pulled forward during the month of August. It is unlikely that there will be a significant reduction in overall weights over the next few weeks, as overall market-ready cattle supplies continue to limit significant market optimism through the futures or cash markets. Despite the recent gains in cash trade, basis levels continue to remain weak, currently nearly $3 per under the August futures while traditional basis this time of year would be positive. The inability to firm cash cattle basis trade will likely limit widespread further support. Futures trade is expected to remain mixed as a combination of pressure in live cattle and feeder cattle trade at the end of last week is quickly eroding early August optimism.

Lean hog futures have continued to gain technical market support with triple-digit gains Friday helping to break out of the tight narrow pattern established near market lows. Although there is limited optimism through the futures complex, the upside market potential remains limited due to the amount of hogs in the system and limited changes in overall pork values over the near future. The questions of short- and long-term demand growth surrounding coronavirus issues impacting the food service industry should become more clear over the next few weeks as we get a better idea of how "return to school" plans will work out given the wide variability by district and region. This will continue to impact not only food service industries, but it will have a trickle-down impact on retail demand. Contracted orders by institutions will also be impacted over the next several weeks as plans remain generally fluid as to what products will be needed to meet individual area and regional demand. The ability to sustain last week's futures gains during early week trade will be essential in helping to spark renewed buyer interest moving into the complex. This could quickly sustain price levels above the $50 per cwt, setting a potential target for fourth quarter price levels near or above $55 per cwt. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents lower. Slaughter Monday is expected at 474,000 head.

	BULL SIDE		BEAR SIDE
1)	Strong moves in cash cattle trade last week will help to firm asking prices once again, helping to put more focus on the current price recovery through the month of August.	1)	Cash cattle basis remains seasonally weak as traders and packers continue to focus on the available supply of cattle on the market.
2)	Tighter cattle supplies through the end of the year and first half of 2021 should help to drive additional long-term buyer support into the complex. This may stimulate additional firmness in deferred live cattle and feeder cattle trade.	2)	Beef demand growth could stagnate through the end of the year based on concerns of shutdowns and restrictions due to COVID-19 issues. The ability for school systems to reopen in many areas will have a significant impact on beef movement.
3)	Triple-digit gains in nearby lean hog futures last week sparked increased buyer support across the entire complex. Maintaining this momentum is likely to bring additional commercial buyer support back to the complex.	3)	Lean hog futures continue to trade near long-term lows, creating concerns of sustained buyer support over the coming days and weeks.
4)	Firm gains in pork cutout values during early August is likely to bring further support over the next couple of weeks.	4)	Hog supplies remain burdensome with current slaughter rates limiting the ability to quickly reduce the backlog of hogs in the system. This could continue to leave markets under pressure through the end of the year.

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

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