GENERAL COMMENTS:
August live cattle futures closed limit lower for the second consecutive session Tuesday. Aggressive pressure in the complex sparked additional sell orders. The market weakness appears to be driven by fear and uncertainty about long-term processing potential. The negativity in the market is having a greater impact than overall lost production at this point. Hog futures weakened, influenced by softness in the cattle trade. Cash cattle activity remained silent as packers and feedlot managers are unwilling to step into this tumbling market. The limit losses over the last two trading sessions are likely to lead to cash market weakness the rest of the week. With trade last week limited, it is expected that some business will need to be done despite the negativity in cattle futures trade. It could be late week before deals are reached. The National Daily Direct afternoon hog report was $1.26 higher ($58.52 to $72.50, weighted average $70.01) on 14,626 head sold. Corn futures fell again in reaction to Monday's bearish USDA report with September down 19 cents. Stock markets ended higher in light trade with the Dow up 384 points and the NASDAQ up 149 points.
LIVE CATTLE: Futures closed $3.77 to $4.50 lower. The October contract not only broke through its low, but has now moved below $100 per cwt. The negativity that comes with breaking through this psychological barrier is expected to be an even more technical issue than setting a contract low. Even though futures trade utilized the expanded trading limits of $4.50 per cwt in August through April futures, record daily increases developed in choice beef cutouts. Choice cutouts increased $7.74 per cwt, surpassing the previous record of $5.80 per cwt set on April 6, 2004. The gap between futures prices and beef values is widening quickly. Estimated cattle slaughter Tuesday is listed at 116,000 head. This is 2,000 less than a week ago. Monday's slaughter was 4,000 head under week-ago levels, indicating that the gap is closing on the lost production capacity at the destroyed Tyson plant. Beef cut-outs: higher, up $2.79 (select, $200.58) to up $7.74 (choice, $226.36) with good demand and heavy offerings, 173 loads (71 loads of choice cuts, 44 loads of select cuts, 31 loads of trimmings, 26 loads of coarse grinds).
WEDNESDAY'S CASH CATTLE CALL: Lower. Given the market freefall in cattle futures, packers and feeders are unwilling to venture into the market given the volatile nature of the market. Bids and asking prices are still undeveloped and likely to remain that way until later in the week. Cash markets are expected significantly lower, but just how much lower is still uncertain.
FEEDER CATTLE: Futures closed $4.85 to $6.75 lower. Early support developed in deferred feeder cattle trade as limited initial selling across most cattle futures and sharply lower corn prices prompted buyers to attempt to cover short positions as they focused on taking a long-term view of the cattle complex. But the momentum seen early in the session swept additional selling into the complex, moving the September contract to expanded limit losses of $6.75 per cwt. This created additional weakness through the entire complex as traders quickly followed the overall bearishness in live cattle trade. CME cash feeder index for 8/12 is $140.08, down $1.02.
LEAN HOGS: Futures closed $0.10 higher to 2.50 lower. Despite firm early morning buying in most lean hog contracts, the limit-lower moves in live cattle futures led to spillover bearishness across all meat markets. The October futures contract sank $2.50 per cwt lower, leading to pressure in all contracts. With this latest move, the October contract broke through long-term support of $64.60 per cwt, creating concerns that this technical shift lower will lead to additional midweek liquidation through most of the lean hog trade. Pork cutout values eroded on triple-digit losses in ham and belly cuts. Pork cutout values fell $0.98 per cwt, moving to $89.21 per cwt, on 403 loads. CME cash lean index for 8/9 is $81.75, down $0.58. DTN Projected lean index for 8/12 is $80.95, down $0.80.
WEDNESDAY'S CASH HOG CALL: Steady to $1.50 lower. Firm follow-through pressure is expected Wednesday morning. Although the full range of bids is expected to be wide, most bids are likely 50 cents to $1 per cwt lower given the inability to spark active futures support and continued weak market tone. Wednesday slaughter numbers are expected at 477,000 head. Saturday runs are expected at 123,000 head.
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