DTN Early Word Livestock Comments

Livestock Markets Enter September With Serious Questions

Rick Kment
By  Rick Kment , DTN Analyst

Cattle: Lower Futures: Mixed Live Equiv $148.31 -0.43

Hogs: Steady Futures: Mixed Lean Equiv $ 77.74 +1.23**

* 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 markets remain undeveloped early Tuesday morning following sluggish interest from either side on Monday. Given the expected quiet week of trade in all areas of the cattle market, packers and feeders are far from eager to aggressively get started, especially feeders who are expecting follow-through price weakness after last week's market pressure. It is also uncertain just how active packers will be with buy orders this week because of significantly reduced production schedules next week due to the holiday and the expectation that there are ample cattle committed to packers during the first two weeks of September. However, light-to-moderate trade is expected to develop in all areas over the next couple of days. More asking prices are likely to develop Tuesday or Wednesday with packers bids expected to be slow to surface. With the upcoming holiday weekend, both sides will not want to push any needed business into late Friday, which may point to most trade developing sometime Wednesday or Thursday. Futures trade is expected mixed in light activity with the focus on market stabilization with a new month on the books. The price bounce Monday seemed to be focused more on end-of-month position-squaring rather than any change in fundamental or technical market factors. In general, there is not likely to be any major market developments until after traders return from Labor Day, leaving live cattle and feeder cattle trade to wander in a narrow-to-moderate range through the week with little long-term direction over the next week.

Lean hog futures seem to have little momentum to make significant market shifts ahead of the weekend. Although prices may continue to chop higher and lower over the next few days within a wide, but well-defined range, the lack of trade volume ahead of the holiday weekend could limit any significant market direction. October futures appear to be well contained within a wide range between $51.50 and $56 per cwt as there is little incentive to break out of the current pattern over the near future. Limited news coming from China about changes in trade and concerns of post-Labor Day pork demand pressure is likely to limit the upside market movement through early September. But active cash market support and the ability to sustain active pork plant production schedules is also limiting widespread downside pressure during early September. This could allow for limited market direction through the next few weeks as traders continue to focus on fundamental factors and move prices back and forth within the defined range. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Tuesday is expected at 485,000 head. Saturday runs are expected at 110,000 head.

BULL SIDE BEAR SIDE
1)

With mixed trade seen in choice and select cuts over the last couple of days, the focus on price stability will be key as holiday buying appears to be wrapped up.

1)

Holiday buying is expected to be essentially wrapped up in beef markets with Labor Day traditionally signaling the last major "grilling weekend" or the summer. Concerns of a pullback in beef demand through the next few weeks could put price pressure on futures and cash market trade.

2)

Despite traditional seasonal pressure in beef demand following Labor Day, the potential to create a counter-seasonal boost in product movement remains strong given the significantly reduced demand through the summer months. As more food service and school lunch program demand develops over the upcoming weeks, overall beef movement is expected to steadily improve.

2)

Cash cattle market activity is expected to remain lethargic going into the holiday weekend. This could allow for additional cash market pressure with early expectations that cash values could fall an additional $1 to $3 per cwt through the week.

3)

Pork cutout values will not fall lower without a fight heading into the fall months. The ability to bring active buyer support back into the wholesale pork complex at the end of August may create additional hope of price stability through the next several weeks, breaking traditional seasonal trends.

3)

Lean hog futures have tumbled from recent highs, falling nearly $2.50 per cwt over the last week. This is creating technical pressure through the complex at a time when seasonal pressure is expected to continue to develop. This could lead to additional price weakness during early September.

4)

Cash hog prices continue to slowly but surely shift higher as packers continue to aggressively source hogs despite the weakness developing in futures trade in late August. This is slowly narrowing the cash-to-futures price spread, creating hope that longer-term market stability is developing across the entire complex.

4)

Packer schedules will be significantly impacted due the Labor Day holiday next Monday. This will further limit the ability to clear market-ready hogs from the system despite attempts to add additional production to Saturday schedules. The burdensome supply issues will continue through most of the year, likely limiting aggressive price support until early 2021.

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

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Rick Kment