DTN Early Word Opening Livestock 06/17 06:19
Limited Activity Sparks Additional Weakness
Firm pressure late last week in all livestock futures is likely to bring
about follow-through selling Monday morning. The weaker tone in hog futures has
traders searching for longer-term support levels.
By Rick Kment
Cattle: Steady Futures: Mixed Live Equiv: $143.34 -0.44*
Hogs: Steady to $1 Lower Futures: Lower Lean Equiv: $ 88.20 +0.18**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Cash cattle trade late last week appears to have been extremely light, which
should leave packers extremely short-bought for this week. This is not new for
most packers, as they seem to be able to maintain steady procurement levels
even though negotiated trade numbers remain light. The lack of active trade
last week could spark earlier movement this week as packers try to pull cattle
forward through the last half of the month. That being said, most of the
activity Monday is likely to be showlist distribution and inventory taking,
with bids and asking prices undeveloped. Mixed trade is expected in live and
feeder cattle futures early Monday morning following moderate to firm pressure
through the end of last week. Traders will continue to focus on the direction
of corn prices. Feed prices have the most direct impact on feeder cattle
production costs as traders and buyers utilize break-even levels to estimate
purchase prices of cattle moving to feedyards. The expectation that cattle
supplies will continue to remain strong through the rest of the year is also
adding underlying pressure to the entire complex.
Firm underlying pressure remains well rooted in lean hog futures trade
following Friday's continued push lower which moved nearby contracts to
three-month lows. The sharp, triple-digit market slide adds to the softness in
the complex as traders continue to focus on demand uncertainty while domestic
production remains active during the summer months. Even with continued
production losses in China due to African swine fever, the fact that trade
relations with China remain tenuous at best, and with no end in sight for the
current trade war, the underlying tone of the market remains under pressure.
Lack of support in hog futures remains and is expected to bring about a flurry
of follow-through liquidation mixed with short-covering attempts during early
week trade. Cash trade is called steady to $1 lower Monday morning with most
bids steady. Expected slaughter Monday is 474,000 head.
BULL SIDE BEAR SIDE
1) Moderate to firm beef demand is 1) Softness late last week in cash
expected to continue through the cattle trade is causing additional
next few weeks based on consumer underlying concern through the entire
buying patterns and improved beef complex. This is adding to
weather conditions. This is helping concerns that seasonal highs may have
build momentum through the complex been hit during early June.
into the Fourth of July Holiday
2) Nearby live cattle futures remain 2) Strong price pressure in choice beef
well rooted above May support cutout prices through the last two
levels at $103 per cwt. The ability weeks is eroding overall demand
to hold these levels through the support for the beef market. Even
month of June should spark though select cuts retain strong
additional buyer support over the buyer support, the inability to hold
near future. price premiums on higher-priced meat
cuts is causing concerns.
3) Sharp, late-week losses in lean hog 3) Triple-digit losses late last week
futures are creating opportunities pushed lean hog futures to
for moderate to strong three-months lows. The underlying
short-covering. This could help add concern about strong domestic
needed momentum, creating production with no evidence of active
underlying support levels. increases of export trade, especially
to China, is causing additional
4) Nearby lean hog futures continue to 4) Softness in traditional summer pork
hold a strong premium to products such as rib cuts and bacon
later-month contracts. This is (belly cuts) is creating underlying
putting increased emphasis on pressure. The inability to maintain
current domestic demand as well as strong price levels in these cuts
the potential to expand export over the next couple of months is an
trade through the upcoming months. indicator of weakening overall
domestic pork demand.
Rick Kment can be reached email@example.com
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