DTN Before The Bell Livestock

Spillover Gains Push Live Cattle and Lean Hogs Higher

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

GENERAL COMMENTS:

Spillover buying is seen in nearby live cattle and lean hog futures Monday morning, as traders have very little new market information available that would change the market direction at this point. Feeder cattle trade still remains under pressure as higher grain prices continue to be a major focus in the feeder cattle complex. Corn prices are higher in light to moderate activity. Stock markets are mixed in limited morning trade. Dow Jones is 51 points lower with NASDAQ up 94 points.

LIVE CATTLE:

Open: Steady to 50 cents higher. Firm follow-through buyer support quickly stepped into the market following the weekend break. But traders have very little new market information on which to trade Monday morning, which is keeping price moves narrow a traders etch out further direction as the week unfolds. Over the past three weeks, the feeder cattle market has taken a significant role in price direction of live cattle trade. It needs to be closely watched if the higher grain prices now affecting feeder cattle trade will spill into the live cattle market momentum, or if live cattle futures have enough traction to etch out further gains. Cash cattle activity remains typically quiet for a Monday morning with all parties looking for show list distribution and inventory taking to develop through the day. It is unlikely that active trade will develop during Monday, with asking prices and bids potentially not being fully developed until Tuesday or Wednesday this week. The strong rally in cash trade over the last two weeks is setting sights even higher, although it is uncertain how aggressive packers will be the closer the Labor Day holiday gets. Open interest fell 699 positions (288,810). August contracts lost 1,485 positions (8,529) and October contracts liquidated 194 positions (124,505). DTN projected slaughter for Monday is 118,000 head.

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FEEDER CATTLE:

Open: Mixed. Uncertainty is most evident in feeder cattle trade with traders caught between higher live cattle trade and higher corn prices. Although the bullish movement in cash and futures live cattle trade is limiting market pressure, the strong rally in corn prices over the last several days is focusing on higher costs of production for both current and future placements. This is essentially the first time this year that cattle feeders have been focused more on feed costs and potential production cost changes than how COVID is affecting cattle market supply and demand. A pullback in futures trade could quickly cool cash feeder cattle markets in the coming weeks. Cash index for 8/13 is $142.25, down 1.15. Open interest Friday gained 366 positions (45,496).

LEAN HOGS:

Open: Steady to 50 cents higher. Light to moderate follow-through support is seen in nearby lean hog futures early Monday morning. The focus on renewed pork cutout values which are starting to firm even further mid-August and nearby lean hog futures testing resistance levels has brought about increased commercial buying activity into nearby futures. The lack of support in deferred contracts is creating some underlying concerns as traders focus on the prices unable to break away from previous levels. Traders will continue to focus on the ability to push pork values higher as pork cutout values have posted a $9 per cwt gain since the first of the month, indicating further support may still develop, helping to instill potential positive moves in futures trade. Cash hog bids are expected 50 cents lower to $1 per cwt higher, with most bids steady to 50 cents higher. Open interest slipped 288 positions (219,692). August fell 273 positions (6,566) and October added 263 positions (101,401). Cash lean index for 8/13 is $53.84, up 0.36. DTN projected slaughter for Monday is 480,000 head.

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

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Rick Kment