DTN Early Word Livestock Comments

Cattle: Steady to Higher Futures: Mixed Live Equiv $140.86 -0.71

Hogs: Higher Futures: Mixed Lean Equiv $ 88.61 -1.12**

* 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 prices posted a much-anticipated bounce higher Wednesday afternoon when light-to-moderate activity developed in the South at $103 to $103.50 per cwt live basis. This is generally $2 per cwt higher than last week's average. Although prices are still well below early asking prices, the ability to leverage the recent rally in futures trade into a sizable gain during the week is expected to spark renewed optimism. Trade in the North has yet to be developed, which is creating some concerns about the ability to maintain the higher price levels as the week continues. It is likely that similar $2 to $2.50 per cwt gains from last week's levels will be seen in the North once all of the dust settles at the end of the week. There is also an uneasiness surrounding the recent tone of the market and the ability to continue to spark renewed buying given uncertainty of cash buying needs and limited support in beef values. December live cattle futures are hovering near $112 per cwt, which is the highest level since the third week in August. A quick recovery in live cattle futures after the Labor Day holiday is creating hope for additional price support during the last half of September and through October. Although lighter placements from the spring are expected to tighten overall supplies during the fourth quarter of the year, domestic demand uncertainty may continue to limit market support the next couple of months. Concern is starting to develop in feeder cattle futures, which posted strong triple-digit losses Wednesday and broke away from the aggressive market rally last week. At this point, support levels appear to be well established, but concern that further gains may be limited could quickly change the technical momentum in the complex, leading to further liquidation.

Lean hog traders continue to pull back from the overly aggressive buyer support late last week surrounding the announcement of African swine fever in Germany. Although ultimately the impact of this discovery in Germany is bullish for U.S. pork, the over-zealous price rally seemed to get market moves out of line with reality, causing moderate price correction. At this point, it is still a guessing game of how short- and long -erm buying will change. Germany was a strong exporter of pork to South Korea, China and Japan, but just because Germany exports are no longer allowed in these countries, doesn't mean that the U.S. will pick up all, or even a majority of the business lost. It is expected that Denmark will be the main subsidiary of export business, keeping most of the Asian export business within the European Union. It is important to remember that even though lean hog prices are backing away from last week's highs, nearby contracts are still trading $5 to $6 per cwt above early September levels, leaving prices in a trading range not seen since before COVID-19. This could continue to spark renewed underlying support through the hog complex the rest of the year. Cash hog prices are expected $1 lower to $2 higher with most bids expected steady to $1 higher. Slaughter Thursday is expected at 486,000 head. Saturday runs are expected at 188,000 head.

	BULL SIDE		BEAR SIDE
1)	Cash cattle prices bounced higher with Southern live trade posting sales of $103 to $103.50 per cwt. This $2 per cwt gain helped to spark renewed underlying support in the complex as some had questions about packers' needs for additional cattle mid-September.	1)	Firm price pressure in feeder cattle futures midweek is creating some underlying concern that the early September rally may quickly end. The inability to maintain active buyer support over the next couple of weeks could contain feeder cattle prices in a stable and sideways trading range.
2)	Growing support in spring 2021 contracts points to additional slow but steady growth potential across the live cattle market. The ability to maintain strong premiums in April contract months is helping to focus on long-term market health and hope of better price levels down the road.	2)	Boxed beef values continue to erode lower as concerns of post-holiday demand pressure is slowly chipping away at wholesale values. This could limit additional price support in futures and cash markets over the next couple of weeks.
3)	Strong triple-digit gains once again developed in cash hog values as traders continue to focus on packers remaining aggressive to source market-ready hogs given the recent rally in futures and pork cutout values.	3)	Lean hog futures continue to quickly back away from last week's gains as traders try to find a sustainable price level due to expected increased export business through the end of the year. This could leave prices moving in a volatile market range over the upcoming days and weeks.
4)	Traders are looking for positive news in the weekly Export Sales report released Thursday morning. Although any changes in export business due to Germany's African swine fever are not likely, this will be a good benchmark report to measure gains over the coming weeks and months.	4)	Hog supplies remain heavy in most areas, creating concern about fall and winter pork demand keeping up with the current production levels over the near future. This may limit further support in futures trade and pork cutout values during the next two weeks.

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

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