GENERAL COMMENTS:
Sharp losses flooded the livestock market Friday afternoon, leaving the market extremely bearish. Technical pressure in live cattle futures moved prices to multi-year lows with limited technical or fundamental support expected over the near future. Hog futures quickly eroded earlier market support, creating concerns of additional pressure next week. From Friday to Friday, livestock futures scored the following changes: Oct live cattle, off $10.13; Dec live cattle, off $3.93; Sep feeder cattle, up $0.95; Oct feeder cattle, up $0.10; Oct lean hogs, off $0.02; Dec lean hogs, off $0.90. Cash cattle trade is undeveloped at this point Friday afternoon, although a few bids are seen in the South at $100 per cwt. Following the aggressive losses in futures, it appears both sides are unwilling to actively enter the market given the uncertainty and general bearish tone of the market. The expectation for both packers and feeders is that moves early next week have a potential to move in their favor, and they are willing to take their chances instead of stepping into the market volatility seen Friday. Cash cattle traded in the North at $164 to $167 midweek, generally $4 per cwt lower from last week. Southern trade developed Thursday at $100 per cwt, $2 to $3 per cwt lower than last week. The National Daily Direct afternoon hog report was unreported at this time. Corn futures posted moderate losses with December down 3 1/4 cents. Stock markets were higher in moderate trade with the Dow up 98 points higher and the NASDAQ up 2 points.
LIVE CATTLE: Futures closed $0.37 to $3 lower. Spot-October live cattle fell limit lower following the inability to defend contract lows Thursday afternoon. This sparked aggressive technical selling and widespread liquidation Friday morning, causing prices to break through long-term spot-month-contract lows set in October 2016. The move below this level now puts support near $90 per cwt set in 2010. Meanwhile, beef and cattle supplies look to continue to increase over the next couple of months and seasonal demand is fading. Despite expectations for tighter supplies at the beginning of next year and limited pressure in deferred contracts, the nearby outlook for the beef market remains extremely weak given the current selling momentum that is limiting buyers from moving back into the complex. Fundamentally, the market would not indicate this much bearishness in the complex, but the last month has shown that "rationality" has little to do with short-term moves in the market. Beef cut-outs: lower, down $2.53 (select, $201.94) to down $2.11 (choice, $227.31) with light demand and light-to-moderate offerings, 125 loads (63 loads of choice cuts, 30 loads of select cuts, 11 loads of trimmings, 22 loads of coarse grinds).
MONDAY'S CASH CATTLE CALL: Steady. Limited direction is expected early next week as both sides look for market stability in futures and beef values before entering the market. Showlist distribution and inventory-taking are likely to be the limit of interest shown Monday.
FEEDER CATTLE: Futures closed $0.60 to $1.42 lower. The fact that feeder cattle futures were sheltered from the sharp limit losses in spot live cattle futures is little consolation, as nearby futures still posted triple-digit losses. Feeder cattle futures moved away from corn market direction Friday and focused on the weakness developing across all cattle trade. Currently, feeder cattle futures remain comfortable positioned within the wide sideways trading range seen over the last month. But the underlying weakness across live cattle futures specifically and overall livestock trade in general is causing potential follow-through weakness to develop. It is likely that moderate commercial liquidation will be seen early next week with overall open interest starting to erode once again. CME cash feeder index for 9/5 is $138.36, down $0.07.
LEAN HOGS: Futures closed $1.45 to $3 lower. December through April futures closed limit lower, down $3 per cwt, as pressure swept through the complex Friday, leaving the market reeling from whiplash and the inability to hang on to recent gains. Although prices are not yet in danger of testing short-term lows seen during August, the late-week pressure did bring traders back to the reality that continued pressure in cash hog prices and weak pork values is overshadowing any expectations for a deal coming from planned trade talks with China. The fact is that there is a lot that needs to still happen before a trade deal is agreed to and implemented, and this may take a long time. Although light export sales to China were reported, this is still disappointing given that China is actively in the market to buy pork in order to replace production losses. Also, last week was the final week of buying before increased tariffs went into effect. So any large orders expected in the near futures would likely have been done last week. Wholesale pork values increased moderately following active gains in picnic and belly cuts. Pork cutout values added $1.36 per cwt, moving to $73.32 per cwt on 227 loads. CME cash lean index for 9/4 is $65.25, down $1.32. DTN Projected lean index for 9/5 is $64.69, down $0.56.
MONDAY'S CASH HOG CALL: Steady to $2 lower. Even though packer capacity is expected to return to normal levels next week, pressure in the entire hog complex is likely to limit cash values. This may continue to erode support through September based on uncertainty of pork demand over the coming weeks and months. Monday slaughter numbers are expected at 482,000 head.
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