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DTN Early Word Livestock Comments      09/18 06:42

   Momentum in Hog Markets Continue

   Lean hog markets continue to remain in the spotlight with the focus on 
changes in global demand sparking additional interest in U.S. pork. Underlying 
support is expected to continue through the end of the week, potentially 
helping to bring spillover support to cattle futures.

Rick Kment
DTN Analyst

   Cattle: Higher   Futures: Mixed    Live Equiv $140.44 -0.42

   Hogs:   Higher   Futures: Higher   Lean Equiv $ 92.50 +3.89**

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

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

   General Comments:

   Cash cattle trade is becoming established with moderate gains from last 
week, following the inability to move prices higher from levels seen early in 
the week. Light-to-moderate trade has been seen in most areas with live trade 
at $103 in the South and $103.50 in the North. Dressed trade in the North 
developed Thursday at $162 per cwt. Prices are generally $2 to $2.50 per cwt 
higher than last week's average, with enough trade to likely set the tone of 
the market and overall market range for the week. Overall trade reported so far 
this week is generally light, which would suggest that at least some clean-up 
activity will continue to develop through the day Friday. But barring any major 
upset in futures prices, any additional cash cattle trade will likely remain in 
the current price range. As packers continue to focus on the ability to hold 
processing levels stable around the 118,000 to 120,000 head per day level 
through the week, weekend procurement will be even more important to watch as 
this will be where packers can manage overall desired plant through-put without 
major disruptions. The concern is that with falling beef values and thinning 
margins, that packers will start backing away from Saturday kill schedules over 
the next couple of months. Futures trade is expected mixed in light early trade 
Friday morning. Although live cattle and feeder cattle futures have recovered 
significantly during early September, the concern that softness in beef demand 
through the upcoming weeks will limit further buyer support and confine nearby 
contracts within a moderate sideways trading range in the near future. This 
could also impact the ability to spark additional open interest gains, as 
commercial and noncommercial traders search for other more appealing commodity 
markets for short-term gains.

   Aggressive pork purchases from China last week as reported in Thursday's 
weekly Export Sales report sparked renewed buyer support to the lean hog 
complex. Nearby contracts are more heavily impacted by the active movement of 
pork to China, but the underlying focus on potential gains from world demand 
brought about by African swine fever in Germany could add even more 
end-of-the-week buyer support. Lean hog futures continue to focus on 
establishing a trading range given the developments in the global markets over 
the last week. This appears that nearby lean hog futures may hinge on the $65 
per cwt price range, which is a $10 to $13 per cwt rally over levels in late 
August. Continued strong support in cash hog values and pork cutout values is 
helping to spark additional underlying support through the complex, although 
limited volume Friday could leave market moves choppy at best. Cash hog prices 
are expected $1 lower to $2 higher with most bids expected steady to $1 higher. 
Slaughter Friday is expected at 482,000 head. Saturday runs are expected at 
188,000 head.

   BULL SIDE                             BEAR SIDE
   Continued support in cash cattle      Feeder cattle futures have taken the
   trade during the week is helping      brunt of the latest price pullback in
   to solidify early week market         cattle trade with nearby futures
   support. This has helped to put       falling $2 per cwt in the last two to
1) the focus on increased packer      1) three trading sessions. The concern
   spending, creating hope that          that further pressure may develop in
   further gains will develop through    cash and futures prices, is adding
   the rest of September.                even more potential weakness to
                                         late-week trade.

   Long-term beef market support
   continues to loom on the horizon
   with tighter supplies of
   market-ready cattle next spring       Softness in boxed beef prices has
   and expectations that beef demand     become even more consistent over the
2) will continue to improve over the  2) last week. This is limiting buyer
   coming months. This has April live    support and offsetting optimism from
   cattle futures trading at a $11       higher cash cattle prices.
   per cwt premium to spot prices,
   giving hope that better prices
   will develop next year.

                                         Limited buyer support in deferred lean
   Pork cutout values continue to        hog futures trade continues to focus
   surge higher, posting aggressive      on uncertainty of how global pork
   triple-digit gains Thursday. The      buying changes will impact U.S. demand
3) fundamental support in wholesale   3) during 2021. Most of the emphasis is
   pork prices is offsetting concerns    on immediate supplies, which creates
   of eroding fall domestic demand.      concerns about developing long-term
                                         trading relationships.

                                         Packers continue to keep aggressive
                                         procurement schedules with 485,000
                                         head moving through plants every day
   Expectations of moderate-to-strong    with Saturday runs expected near
   export demand developing not only     200,000. The amount of hogs and pork
   in China but many Asian countries     moving through the system continues to
4) over the coming weeks is expected  4) put pressure on the ability to
   to spark additional price support     consistently and aggressively increase
   in nearby lean hog futures.           pork demand in order to keep supplies
                                         from backing up in coolers and
                                         freezers. This may become a more
                                         prominent issue if export sales do not
                                         actively expand as some expect.

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

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