DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv $143.76 +1.07*
Hogs: Higher Futures: Mixed Lean Equiv $80.08 +0.93**

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

General Comments:

Continued activity is seen in cash cattle trade as the week continues with cash prices seen near $106 live in the South and $170 in the North on a dressed basis. This is steady with early week price levels, but generally a $2 per cwt rally from last week's prices. This would represent seven weeks in a row, where cash cattle prices have moved higher, creating both optimism of further price support through the end of the month and concern that the upward momentum may quickly run out of steam. The constant pace of packer movement over the last six weeks has continued to clear market-ready cattle that had the market under pressure through most of the spring and summer months. Traders are closely focusing on the end of the week cattle on feed report to get a better indication of overall cattle supply levels available, but this still may give a skewed view given the volatile placement and marketing patterns seen in 2020. Early estimates for the cattle on feed report look for an increase of 0.8% of cattle in feedyards from last year, while placements are pegged at 6.2% over year ago levels. Placement levels are the segment where there seems to be the least consensus as the range of estimates ranges greatly, but all early estimates expect higher placements in July a year earlier. The cattle on feed report does give a good snapshot over overall cattle available to the market, but with the report only focusing on feedlots of 1,000 head or greater, this doesn't take into account what is seen at small feedlots or the many farmer feeders. This segment of the industry has seen the greatest challenges through 2020 gaining adequate and timely market access for their cattle. Moderate follow through buying is expected to slowly develop in live cattle and feeder cattle trade focusing on the fundamental support seen through the week. With nearby live cattle contracts setting new summer highs and trading at the highest levels in over five months, the focus will continue be placed on Labor Day sales and the ability to sustain this shift in demand into early fall months.

Lean hog futures continue to gain renewed buyer support as futures trade is being driven by fundamental support and firming cash values. The strong move higher in cash hog trade midweek, combined with active pork cutout support is rekindling the expectations that increased market gains will redevelop in lean hog trade through the end of the week. Following sharp losses Tuesday, traders seem to be establishing short term lows. This has helped to instill increased commercial and investment trade in the lean hog futures complex, and potentially test resistance levels over the near future. The ability to close prices above $53.50 per cwt through the end of the week is expected to spark additional buyer support next week. Although with uncertainty of demand after the Labor Day holiday still in question, there continues to be the expectation that market lows have been reached, thus limiting the downside potential of the market over the coming weeks. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Thursday is expected at 483,000 head. Saturday runs are expected at 245,000 head.

	BULL SIDE		BEAR SIDE
1)	Firm gains in cash cattle and boxed beef values continue to focus on active fundamental support developing in the cattle complex during late August.	1)	Uncertainty of beef demand trends following the Labor Day weekend could create some reactionary market shifts through the end of August. This could create concerns about sustaining previous gains.
2)	Friday's cattle on feed report is expected to post slightly larger cattle on feed levels than last year. Given August and September inventory levels posting seasonal lows, the expectation that cattle inventory will significantly drop from month ago levels as the industry becomes much more current and gets back to a typical seasonal pattern.	2)	Demand for beef in the food service industry still remains extremely subdued as consumers are slow to return to pre-Covid routines and dining out options and menus still remain somewhat limited. This could continue to impact support and demand for high value cuts through the fall and winter months.
3)	Strong gains in cash hog values developed midweek, creating expectations that this support will carry through the next few days.	3)	Continued uncertainty surrounding further trade activity with China will be focused on early Thursday morning with the release of the weekly export report. Further reports of lackluster sales to China last week could spark moderate pressure in futures trade.
4)	Active pork movement is still expected ahead of the Labor Day weekend. With pork prices gaining momentum through the month of August, wholesale and retail prices still remain well below levels seen in late spring and early summer, sparking potential consumer buying patterns creating significant value.	4)	With Labor Day buying wrapping up in the next week or so on the wholesale market, there remains significant questions of if consumer pork buying will continue to remain strong through the rest of the year.

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

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