DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv $145.13 +0.20

Hogs: Steady Futures: Mixed Lean Equiv $ 89.03 +0.16**

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

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

General Comments:

Despite continued optimism building in cash cattle trade over the last couple of days, cash market trade has been at a near standstill with just a handful of live cattle sales reported in Iowa so far this week. The combination of firmness in live cattle futures and surges in boxed beef values is adding to feedlot managers resolve with asking prices at $112 live. Few bids have yet to develop with packers still hovering on the sidelines looking for more direction in the next couple of days from both beef values and outside market shifts. The potential to push cash values $2 to $3 per cwt higher than last week's average is there, but with the lighter holiday packer schedules this week due to Wednesday's Veterans Day holiday and upcoming Thanksgiving holiday just around the corner it is uncertain just how many cattle packers will need to acquire this week. Live cattle futures trade continues to show signs of further underlying support developing, which not only could test October highs, but a move above $112.85 in December contracts would move prices to the highest levels since before COVID-19 ravished the market. The growing hope and expectation of a potential vaccine despite record numbers of new cases seen each day has created renewed optimism in not only the cattle complex, but through most markets. Feeder cattle remain in a tough spot, with firmness seen in the beef complex, while surging grain prices will significantly increase feed and production costs for cattle moving into feedlots in the near future. This could add further pressure on nearby feeder cattle contracts through the end of the week.

Lean hog futures continue to struggle despite the recent market support seen last week. The inability to hold current support levels in nearby and deferred lean hog futures may be able to retest early November support levels, although the expectation that increased buyer support moving into the entire livestock complex may limit downside market moves. Spot December contacts slipped below $65 per cwt once again, closing at $64.80 per cwt, with limited trade volume as traders look for renewed interest heading into the holiday season. Although overall demand for pork remains strong, the continued aggressive supply of market-ready hogs through the U.S. continues to limit upside market potential. So far, packers seem to be able to keep production schedules at capacity, but the concern of growing COVID-19 cases is causing even more nervousness in the pork market, which was heavily impacted by processing shortcomings during the spring months. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady 50 cents higher. Slaughter Thursday is expected at 490,000 head. Saturday runs are expected at 290,000 head.

	BULL SIDE		BEAR SIDE
1)	Firm underlying support in beef values is adding increased momentum to nearby live cattle futures. December futures are testing resistance levels of $112.65 per cwt set in October, a move above these levels is likely to add further widespread buyer support through the cattle complex.	1)	Significant gains in corn and soybean meal prices has created additional pressure in feeder cattle trade during the week. The higher production costs typically have a significant impact on cattle prices moving into feedlots, with elevated grain market prices potentially putting a significant drag on feeder cattle prices through the end of the year.
2)	Even though cash cattle trade is quiet, feedlot managers remain in the drivers seat midweek as they hold onto elevated asking prices. This week has the potential to post the largest one-week cash price gain in the last six weeks.	2)	Even with higher cash cattle and futures prices seen during early November, current prices remain significantly lower than last year's cash values and the three-year average. This remains limited support to regain significant ground in cash values before the end of the year due to beef demand limitations.
3)	Underlying pork demand from domestic and export markets still remains strong through the end of 2020. This is expected to help clear additional pork supplies, enabling the entire market to focus on potential market gains during early 2021.	3)	Wide shifts in pork cutout values is creating increased uncertainty in the lean hog complex. This could limit significant buyer support moving into nearby and deferred contracts in the upcoming days.
4)	Cash pork prices continue to remain stable to firm through the end of the week with packers still focusing on aggressive processing rates given the significant margin currently seen for packers. This will likely continue to keep processing speeds at current levels through the near future.	4)	Lean hog open interest eroded Wednesday, falling over 1,200 contracts. The continued pressure in hog markets and inability to maintain buyer support is creating further questions about short-term support developing before the end of the year.

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

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