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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.

Rick Kment
DTN Analyst

   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

   General Comments:

   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 rick.kment@dtn.com

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