DTN Early Word Livestock Comments 10/20 06:45
Further Market Liquidation Possible on Technical Pressure
Cattle markets saw further technical destruction with near limit losses
Monday, creating the expectation of additional early losses Tuesday. Increased
volatility is likely to redevelop, leaving early trade sluggish as traders get
a better feel for overall market direction.
Cattle: Lower Futures: Lower Live Equiv $135.90 -0.54
Hogs: Steady to Lower Futures: Mixed Lean Equiv $103.99 -1.09**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Sharp losses in live and feeder cattle futures Monday sparked an unexpected
run of cash cattle trade Monday afternoon. Although trade volume remained
light, the significant weakness in market tone was undeniable as cash cattle
sold $2 to $3.50 per cwt lower than last week's price levels with feeders
trying to take protection in the event that further losses develop as the week
continues. Live trade was reported at $106 per cwt, with dressed sales at $165
to $166 per cwt. It is uncertain just where asking prices or bids will develop
through the day Tuesday or at this point if both sides will wait to see where
the dust settles in the futures complex. But unless a significant shift is seen
in futures and boxed beef values, the tone of the cash market for the week is
expected to remain lower. However, it is still too early to tell if Monday's
losses will be enough pressure to satisfy the weaker market structure as
packers will likely limit buying interest in the upcoming days. The Oct. 1
Cattle on Feed report scheduled for Friday afternoon is also starting to gain
some attention. Although this will not start affecting trade levels until later
in the week, the expectation of increased placement levels will likely add even
more underlying concern to current feeder cattle prices. Feeder futures are
expected to open lower but given the extreme pressure in live and feeder cattle
Monday, initial trade volume is expected to remain limited. But once more
volume steps into the market, further market volatility may quickly develop.
Lean hog futures continue to show mixed market direction with strong
underlying support still holding in nearby December contracts while the rest of
the complex posted active losses Monday. The aggressive pressure in cattle
trade caused significant market pressure in most 2021 contracts, which may lead
to additional wide price swings through the first half of the week. Mixed trade
is likely at opening bell, as a combination of follow-through selling pressure
and active short-covering develops, especially in spring and summer 2021
contracts. The uncertainty of further demand support from domestic and export
markets over the next several months continues to add uncertainty to the
direction of long-term buyer support. But the ability of spot contracts to
continue to surge through resistance levels is still keeping buyers active at
this point. Cash hog prices are expected $1 lower to $1 higher with most bids
steady to firm. Slaughter Tuesday is expected at 487,000 head. Saturday runs
are expected at 225,000 head.
BULL SIDE BEAR SIDE
Feeder cattle open interest continues Sharp, early-week pressure in live
to expand despite sharp downward price cattle futures posted significant
shifts. This indicates traders are uncertainty in all nearby live
focused on a significant buy signal, cattle trade. The inability to
1) given the oversold status of the 1) hold September support levels in
feeder cattle complex over the last nearby live cattle contracts
week. This could quickly turn market sparked active technical pressure
direction in feeder cattle, sparking through the entire complex.
price support in the near future.
Feedlot buyers are expected to take November feeder cattle traded
advantage of the misfortune of through much of Monday's session
significantly lower feeder cattle at limit-lower prices. Although
prices. This will significantly reduce markets closed leaving limits
2) purchase prices of cattle moving into 2) unchanged, on Tuesday continued
feedlots over the upcoming weeks as market weakness is expected given
cash feeder cattle prices continue to the lack of support through the
erode, causing discounted inventory entire complex.
costs, currently at 6-month lows.
Continued strong, near-term buyer Firm pressure in cash hog and pork
support moving into December lean hog cutout values Monday is creating
futures is breaking through long-term concerns that the recent market
resistance levels, pointing to further rally is coming to an end, at
3) market expansion based on active 3) least from a fundamental
product movement in domestic and perspective. This could limit
export markets. additional short-term market
Sharp losses in deferred lean hog
Despite the early week pullback in futures created growing
pork prices, cutout values continue to uncertainty about the ability to
show strong upward support with the maintain previous and expected
4) tone of the market pointing to further 4) price margins through the summer
gains in the near future. 2021 contracts. This could quickly
change long-term market direction
in the entire lean hog complex.
Rick Kment can be reached at firstname.lastname@example.org
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