DTN Early Word Opening Livestock 08/19 05:58
Spillover Weakness Expected Monday Morning
Sharp lean hog losses Friday will weaken market direction early Monday
morning, although a combination of short-covering and follow-through selling is
By Rick Kment
Cattle: Lower Futures: Mixed Live Equiv: $153.27 +1.63*
Hogs: Lower Futures: Lower Lean Equiv: $ 91.12 -1.97**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Given the continued bearish market direction in cattle trade, cash cattle
interest is expected to remain at a standstill through the first couple of days
this week. Showlist distribution and inventory taking is likely to be the
extent of any cash market information seen during the week. Now that we have a
complete week in the books following the Tyson plant fire, it will be
interesting to monitor and watch daily slaughter numbers. I would expect that
overall numbers would be steady to higher than last week's levels, which may
eliminate some of the overall pressure from causal market watchers and some
noncommercial traders. Especially since "year-ago slaughter numbers" give us a
less complete picture due to the overall changes in market structure over the
last year. Firm pressure last week has caused live cattle and feeder cattle to
remain generally oversold. This is expected to spark additional potential for
moderate-to-firm gains through the week, although the renewed bearishness in
hog trade is likely to limit upward movement.
Sharp limit losses in spot October lean hog futures sparked additional
technical pressure in the complex. This not only moved prices to year-long lows
in October contracts, but opened the door for additional technical selling over
the near future. Long-term support remains near $58 per cwt, which is still
another $4 per cwt lower than current levels, but with expanded limits
available and continued concerns of weak pork demand and uncertain trade issues
with China, losses like this are reachable. The lean hog futures complex is
could expand the discount to cash values, likely adding additional fundamental
pressure to the complex. Cash bids are expected steady to $3 lower with most
bids $1 lower. Expected slaughter Monday is at 474,000 head.
BULL SIDE BEAR SIDE
1) Given the active Saturday plant 1) Continued pressure in live cattle and
runs, beef packers increased plant feeder cattle trade has limited
output from week-ago levels even additional buyers moving back into
without the Kansas Tyson plant. An the complex. The underlying pressure
estimated 7,000 head increase from may spark additional market weakness,
week-ago levels should help to keep holding nearby contracts under $100
cattle supplies current despite the per cwt.
limited plant space.
2) Sharp triple-digit gains continue 2) Renewed buyer support quickly
to develop in boxed beef values. developed in corn trade late last
Continued concern about packer week. The focus is moving away from
capacity is sparking underlying USDA's latest crop projection levels
wholesale buying, which is quickly and onto other sources such as the
improving packer margins. DTN/Progressive Farmer 2019 Digital
Yield Tour last week and other
on-the-ground surveys over the near
3) There is limited pressure in 3) Late-day pressure flooded lean hog
deferred lean hog futures trade. futures Friday. Sending October
June contracts currently hold a $21 futures limit lower as renewed
per cwt premium to spot contracts, technical pressure quickly
allowing not only long-term support redeveloped. This may create
but potential to remain in the additional long-term weakness in the
complex long term. complex as traders struggle to find
technical or fundamental support in
the near future.
4) Firm cash hog markets have put the 4) Wholesale pork prices have been
focus on the need and ability of unable to show significant
packers to aggressively source hogs improvement or even signs of life the
in order to meet daily plant last few days. This may add even more
requirements. This is helping to uncertainty to the complex as trade
maintain an aggressive premium over and recession concerns continue to
futures trade, and may help to grow.
stabilize the complex.
Rick Kment can be reached at email@example.com
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