DTN Early Word Livestock Comments

Cattle: Steady Futures: Lower Live Equiv $148.74 -0.59

Hogs: Higher Futures: Mixed Lean Equiv $ 76.51 -1.36**

* 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 is expected to remain sluggish through the Monday session with showlist distribution and inventory taking likely to be the main order of business during the morning. The lower cash cattle trade combined with boxed beef sliding lower at the end of last week is sparking further expectations of weaker cash cattle trade as the month of August comes to a close. Even though little to no activity is expected in cash cattle trade Monday, it is likely that both sides will try to wrap up needed business before Friday ahead of the long holiday weekend. Slaughter levels are expected to remain generally normal through most of the week, although moderate reductions are likely Friday and Saturday, but the bulk of the reduced packer capacity for the holiday will develop next week with packers remaining dark next Monday due to the Labor Day holiday. This will further impact packers cash market interest this week as there appears to be little desire for packers to gain access to large amounts of cattle given the current access to supplies by all parties over the next few weeks. Futures trade is expected to be mostly lower early Monday with traders focusing on the combination of cash market weakness and eroding boxed beef values. It is likely that beef values will continue to shift lower now that most, if not all, of the holiday buying has been accomplished. This is likely to add further pressure to nearby live cattle and feeder cattle trade during early week trade. The potential for end-of- month short-covering moving into the market Monday morning cannot be overlooked, which could create some price shifts through the session, but it is not expected to offset the developing weakness in the complex or overshadow the trend weakness in cattle markets.

Sharp losses late last week in lean hog futures trade continues to undermine the recent market support across lean hog futures and spark indications of further market losses going into the month of September. With just one day left on the August calendar, there could be some late month short-covering stepping back into the market, but the overall trend of the market has started to weaken, which will likely continue through the Labor Day Weekend. With October lean hog futures unable to break through resistance levels of $56 per cwt last week, increased market pressure developed through the complex late last week, causing further concern that additional price weakness may develop. With lean hog futures prices gaining nearly $8 per cwt through the month of August, the focus on further demand concerns following the Labor Day holiday is starting to put pressure on pork values once again while also adding further concerns that a short-term high has been set across the complex. Most trade is still expected to be contained in October and December contracts, with limited activity likely in deferred contracts as traders still focus on more support likely during spring and summer 2021 contract months. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Monday is expected at 484,000 head.

	BULL SIDE		BEAR SIDE
1)	Long term beef demand is still expected to remain firm through the remainder of 2020, despite seasonal pressure around Labor Day. This is expected to limit aggressive market pressure in nearby and deferred futures with spring live cattle contracts still targeting potential long-term price targets of $115 to $120 per cwt.	1)	Sharp losses in live cattle and feeder cattle trade late last week created underlying market weakness as prices moved through initial support levels. The concern that further pre-holiday trade will further weaken technical market structures is pointing to further potential losses.
2)	Boxed beef prices have seen limited price pressure at this point despite most of the Labor Day buying already wrapped up. Even with beef values expected to top out, it is possible that the prices could limit the losses over the next couple of weeks.	2)	Choice boxed beef values weakened Friday, creating the expectation that the market has hit a seasonal high. Further price pressure is expected surrounding the upcoming holiday, but this could signal a longer-term change in market price direction in all cattle markets.
3)	Cash hog values continue to steadily improve as traders continue to focus on narrowing the price gap between cash and futures price. This could help to maintain price stability in the complex over the next couple of weeks.	3)	Pork prices faltered once again Friday, creating additional concerns that more weakness is just around the corner. This could leave prices generally unsupported as nearby lean hog futures are taking the brunt of the fundamental weakness.
4)	Glimmers of hope between the U.S. and China when it comes to overall market and trade relations continue to develop, which could help sustain active buying of pork product by China through the rest of the year, helping to further support price levels in the U.S.	4)	The inability to hold October lean hog futures above initial support levels of $54 per cwt Friday has opened the door for additional technical weakness through the entire complex. This moves the next support level at $51.42, still over $2 per cwt below current price levels. These price levels are well in reach of the wide market swings in the complex over the last month and could add further long-term pressure to the market.

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

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