DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv $147.79 - 0.52

Hogs: Steady Futures: Mixed Lean Equiv $ 78.63 - 1.03**

* 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 continued to develop midweek with prices eroding lower from last week's levels and steady to lower from initial Tuesday trade. Trade in the South developed at $102 to $104 per cwt, most trade at $103 per cwt. This is $1 per cwt than the day previous, but $2 per cwt lower than last week. Additional trade in the North developed at $163 per cwt, which is generally $4 per cwt lower than last week. Although there still may be some price shifts the next couple of days, it is expected that cash markets have now established a range in order to accomplish the remainder of business needing to get done. Both sides appear focused on wrapping up trade earlier than later in order not to carry needed sales into late day Friday. This would put more emphasis on the ability to ink deals yet Thursday. The sharp pullback in all cattle trade Wednesday seemed to be a little overkill given the limited trade interest in the market. But feeder cattle futures led the complex lower with strong triple-digit losses in nearby contracts. October futures moved below $140 per cwt once again, recording the first close below this level since the middle of July. By breaking through this support level, the fact that seasonal highs are in the rearview mirror is creating uncertainty as to how markets will react after the Labor Day break. October live cattle futures led the complex lower, as uncertainty of how demand through retail and foodservice industries will hold going into the fall months. Trade is expected to once again remain mixed, although the volatility this week may not quickly evaporate. This could leave prices mixed in a moderate-to-wide range through the rest of the week.

Hog futures continue to be the bright spot in the livestock markets as aggressive nearby gains quickly broke through resistance levels Wednesday, setting seasonal highs in nearby and deferred contracts. October futures posted the most aggressive gains Wednesday, closing at $56.40 per cwt after as $1.37 per cwt rally. This renewed support in the complex has now accounted for unchecked $3 per cwt rally going into the long holiday weekend. With two days yet to trade, there is a lot that can change in price direction before the weekend, but technical buyer support continues in all contract months. A question about pork cutout values being able to maintain current price ranges through the month of September continues to be one of the major uncertainties limiting further gains in the hog complex. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Thursday is expected at 485,000 head. Saturday runs are expected at 108,000 head.

	BULL SIDE		BEAR SIDE
1)	Long-term price support continues to hold with April 2021 contracts still trading at a $10 per cwt premium. This continues to focus on the expectation that demand will improve over the next few months, helping to add further support to the beef complex.	1)	Continued pressure in cash cattle prices as the week unfolds points to further potential market losses in the weeks ahead. This could add underlying softness to the entire complex through early September, as traders look for limited market support until later in the year.
2)	Although the futures market has already looked past the upcoming Labor Day weekend, the expectation of strong consumer demand over the next several days will create the opportunity to clear large amounts of beef from the market. Strong holiday demand could quickly spark follow-through September buying, limiting expected market erosion through the upcoming weeks.	2)	Weakness in boxed beef values is causing widespread concern that further aggressive market pressure may develop in the next couple of weeks. The lack of demand growth in the food service industry through the fall continues to put pressure on the ability to move current beef supplies through the system and onto consumer's tables.
3)	Strong gains quickly developed in cash hog values as packers continue to aggressively move into the market, securing hogs for the active daily runs. This is expected to continue to shift cash values higher through the upcoming weekend.	3)	Pork cutout values eased midweek despite strong gains in cash and futures prices. This move lower is not surprising given the expected change in seasonal buying expected following Labor Day. But further pressure in pork values will significantly hamper the ability to push futures trade higher during early September.
4)	Lean hog futures surged higher Wednesday with traders quickly moving from the cattle complex to the hog market. This renewed sense of activity helped to push October contracts to six-week highs, quickly breaking through resistance levels in most contract months.	4)	Strong gains have quickly developed in nearby lean hog futures. This has pushed prices to four-month highs. Fundamental market factors remain generally bearish given strong production and heavily discounted cash values. This could quickly cause wide market losses in futures trade at a moment's notice, based solely on trader participation.

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

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