DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $134.37 - 0.56*

Hogs: Steady Futures: Higher Lean Equiv: $ 97.71 - 1.39**

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

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

General Comments:

As anticipated, the cattle complex was able to shrug off the bearish Cattle on Feed report for the most part Monday. Feeder cattle showed nice gains and held most of it while live cattle slipped back from good gains to close mixed. One could say the bearishness of the report has already been factored in. Neither packers nor feedlots tipped their hand Monday, deciding to wait until Tuesday to see if anyone will blink. It is likely packers will open with bids lower than last week unless greater strength is seen for boxed beef and higher futures unfold. There is not much hope for either one right now. It is unlikely any business will take place Tuesday in the country. The Commitment of Traders report showed funds still net-long 34,941 contracts after some serious liquidation the previous week.

Lean hogs made a nice rebound Monday possibly signaling a change in trader sentiment. However, it takes more than a day or two before a bottom can be confirmed technically. Cutout values continue to suffer with increased competition from other meats. China concerns still float around the market and will continue to be a topic of discussion, but lower-than-expected imports from them is a ways in the future and should not impact current trading. The market has corrected more than enough technically but may struggle to resume the uptrend. The Commitment of Traders showed funds net-long 42,058 contracts, indicating a bullish attitude.

	BULL SIDE		BEAR SIDE
1)	Cattle futures were able to perform well considering the bearish implications of the Cattle on Feed report. The negatives may already be factored in allowing for the market to rebound.	1)	Cattle weights are higher and will put more beef on the market as slaughter increases. It may be difficult to absorb the extra product through the end of the year.
2)	The market is oversold technically, which could trigger short-covering and a price correction. A price increase could give feedlots the confidence to hold for higher cash prices this week.	2)	The inability of the market to follow-through Monday to the upside may indicate the market is correcting from being oversold, but it may not have enough support to push futures higher. Futures establish a lower low initially.
3)	China is rebuilding their hog herd, but it will still take time to fully accomplish that task. In the meantime, they will continue to import pork, which should provide support to prices into next year.	3)	Pork prices have declined enough to increase the interest of packers, but that interest might be confined to steady-to-lower bids.
4)	Hog futures are oversold and the price reversal Monday may indicate buyer interest has returned.	4)	Concern over exports to China slowing next year continues to be a cloud hanging over 2021 futures contracts. The price bounce Monday may be short-lived as the market grapples with current supply and futures demand.

Robin Schmahl can be reached at rschmahl@agdairy.com

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