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DTN Early Word Opening Livestock       12/06 06:31

   Firming Cash Cattle Trade Supports Cattle Futures   

   Cash cattle trade has started for the week, but increased volume is expected 
to develop Friday. The upward momentum, which continues through the week, is 
expected to add support to the entire cattle complex.

By Rick Kment
DTN Analyst


Cattle: Higher             Futures: Higher   Live Equiv $146.80 -1.07* 
Hogs:   Steady to higher   Futures: Mixed    Lean Equiv $ 86.33 +0.36**

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

GENERAL COMMENTS:

   Light-to-moderate trade developed in the South with live cattle selling at 
$118 to $119 per cwt, mostly $119 per cwt. This is generally a $1 per cwt rally 
from week-ago levels with underlying support in the cash cattle trade as 
packers continue to move to a more normal packer schedule. With Tyson's Kansas 
plant now partially back online and ramping up production to normal capacity 
over the near future, the need to gain access to additional cattle will likely 
bring support to cash cattle trade. Although packer margins have eroded over 
the last week, they still remain impressive and should keep packers running at 
full throttle in order to take advantage of current margins. Additional cash 
cattle trade is needed, especially in the North, with packers only showing 
moderate interest up to this point, but the expectation is that prices will 
need to be steady to $2 per cwt higher in order to get needed business done. 
Futures trade is expected mixed-to-moderately higher as follow-through support 
from Thursday's gains is expected to slowly move into the complex at the end of 
the week. Friday slaughter runs are expected at 119,000 head.  

   Firm pressure in lean hog futures trade Thursday quickly pulled back from 
previous market optimism midweek. The expectation that the roller coaster price 
shifts will continue through the end of the week, and likely well into the 
month of December could keep prices volatile and traders on edge. Although 
overall hog weights are slowly falling due to seasonal factors, market-ready 
hogs still remains strong. This will continue to be heavy through the end of 
the year. Continued uncertainty surrounding trade issues with China continues 
to leave the market unsettled. Although statements over the last couple of days 
focusing on China's dedication to move forward with a phase one trade 
agreement, there has been very few details of progress being made. Not only are 
current tariff levels a major issue in moving forward in the trade agreements, 
but the next round of impending tariff levels is just around the corner and 
scheduled to be instated Dec. 15. This could add even more uncertainty in the 
near future. Cash hog prices are expected to bounce higher in active trade 
Friday. Slaughter Friday is expected at 490,000 head. Saturday runs are 
expected at 325,000 head.

   


   BULL SIDE                               BEAR SIDE
1) Cash cattle trade has started to     1) Weakness in feeder cattle futures is
   develop with Southern live trade        causing some underlying concern that
   generally $1 per cwt higher than        short-term upside movement may be
   last week. This points to renewed       limited. The inability to gain
   expectations of follow-through cash     additional buyer support at the end
   market gains during early December.     of the week could leave feeder
                                           cattle trade stuck within the wide
                                           sideways trading range in the
                                           upcoming days and weeks.

2) Increased plant capacity and         2) Continued pressure in boxed beef
   continued strong packer margins are     values have eroded some of the
   expected to keep packers bidding        support in cash cattle trade. The
   aggressively through not only the       inability to hold wholesale beef
   end of the week, but most of            values going into the Christmas
   December. This is likely to help        holiday season may spark underlying
   support futures trade based on          bearish concerns in the next several
   underlying fundamental support          weeks.
   developing in cash cattle trade.
3) Steady gains in cash hog prices this 3) Strong triple-digit losses in summer
   week have added fundamental support.    lean hog futures continue to add to
   This may continue to spark              the concern that markets may remain
   steady-to-strong buyer activity in      stuck in the lower end of the
   the coming days..                       trading range through the end of the
                                           year, and well into first quarter of
                                           2020.

4) Active packer activity this week is  4) Despite packers maintaining
   causing large daily plant runs,         aggressive schedules and holding
   which when combined with a strong       slaughter at or near record numbers,
   325,000 expected run on Saturday,       the amount of market-ready hogs
   could push weekly pork slaughter        available remains strong. This is
   near 2.8 million head.                  likely to curb upward market support
                                           in the near future.

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


(BAS)

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