Friday Closing Livestock Market Summary - Cattle on Feed Numbers Steady

GENERAL COMMENTS:

Sharp losses flooded the entire livestock market Friday as traders continued to focus on larger-than-expected beef supplies in July and the bearish market tone continued as traders adjusted from earlier-week gains. Nearby hog futures closed limit down, breaking through long-term support levels. From Friday to Friday, livestock futures scored the following changes: Aug LC, up $4.70; Oct LC, up $1.35; Aug FC, up $2.78; Sep FC, up $0.88; Oct LH, off $2.70; Dec LH, off $2.00. Cash cattle trade developed through the second half of Friday with Southern live trade seen mostly $106 per cwt. This is generally $1 per cwt higher than last week, but still continues to focus on the underlying market weakness seen in the entire cattle complex. Dressed trade in the North developed with most trade to major packers at $175 per cwt. This is $4.50 per cwt higher than last week. A few deals were reported to regional packers with delayed delivery agreements at $176 to $178 per cwt. The National Daily Direct afternoon hog report was $1.57 lower ($55-$70.00, weighted average $64.55 per cwt) on 13,468 head sold. Corn futures inched lower in light trade with September down 3 1/2 cents lower. Stock markets were lower in active trade with the Dow down 623 points and the NASDAQ down 239 points.

LIVE CATTLE: Futures closed $0.35 to $1.80 lower. Triple-digit losses flooded the cattle complex as traders focused not only on the bearish cold storage report, which showed a strong inventory build from June, but also on China announcing increased tariffs on U.S. ag imports in retaliation to U.S tariffs that are set to go into place on Sept. 1. Even though beef to China is a part of these latest tariffs, the amount of beef sold to China is very small in comparison to overall China imports and U.S. beef exports. But the fact that tariffs are involved and could spark further tit-for-tat actions by both sides clearly affected all markets Friday. The monthly Cattle on Feed report released Friday afternoon was uneventful in terms of the total cattle on feed. Unchanged numbers from a year ago indicate a steady level. The combination of higher marketings and lower placements in July is helping to tighten overall supplies through the summer months. Beef cut-outs: lower, down $3.20 (select, $212.71) to down $1.76 (choice, $237.52) with light demand and offerings, 77 loads (37 loads of choice cuts, 18 loads of select cuts, no loads of trimmings, 22 loads of coarse grinds).

MONDAY'S CASH CATTLE CALL: Steady to lower. Monday's cash market activity is expected to remain subdued with showlist distribution and inventory-taking the main focus through day. A weak market tone is hovering over the complex, likely limiting additional short-term support.

FEEDER CATTLE: Futures closed $1.05 to $3.17 lower. The focus was on Thursday's Cattle on Feed report where beef inventory in July increased 12% from June, highlighting the need to clear additional product in the near future. Even though year-to-year supplies are running significantly lower, the concern is that summer buying trends in July and market volatility has changed buying patterns. Following closing bell, the Aug. 1 Cattle on Feed report showed cattle placements in feedyards fell 2% from a year ago. This is expected to be supportive to the complex early next week, but it is uncertain if it will outweigh the bearish market shift seen Friday. CME cash feeder index for 8/22 is $139.72, down $0.17.

LEAN HOGS: Futures closed $1.05 to $3.00 lower. Lean hog futures posted sharp late-week losses as nearby contracts started a freefall and quickly broke through support levels seen over the last week. That led to widespread panic selling across the complex. The October futures contract posted limit a loss of $3 per cwt midmorning, limiting any additional trade in spot futures and helping to keep other contracts from posting further big losses. Friday's losses will trigger expanded trading limits Monday, which will allow prices to swing $4.50 per cwt. However, with prices under $60 per cwt, there remains limited pressure to the downside. But with the weak fundamental and technical holding in the market, it is unlikely that renewed support will be evident. Pork cutouts continued lower as moderate gains in most primals were offset by sharp losses in rib cuts. Pork cutout values fell $0.29 per cwt, moving to $79.65 per cwt on 180 loads. CME cash lean index for 8/21 is $77.04, down $0.36. DTN Projected lean index for 8/22 is $75.94, down $1.10.

MONDAY'S CASH HOG CALL: Steady to $2 lower. Continued pressure is expected given the underlying bearishness in not only hog futures, but most markets. Although packers will still need large hog numbers to fill expected procurement levels, the focus will be on weaker market trends. Monday slaughter numbers are expected at 475,000 head.

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Friday Midday Livestock Market Summary - Sharp Losses Flood Livestock Trade

General Comments

Livestock futures are holding triple-digit losses in all contracts as the focus on increased beef inventory on a month to month level has reversed recent buyer interest through the complex. Hog futures tumbled through long-term support levels, creating a market free-fall as prices are testing daily limit losses. Corn futures are lower in light morning trade. September corn futures are 4 1/2 cents lower. Stock markets are lower in active trade. Dow Jones is 440 points lower with NASDAQ down 168 points.

LIVE CATTLE:

Traders quickly reacted to a combination of fundamental and outside market factors Friday morning, leaving a wake of sharp losses in its path. A strong increase in beef inventory in July compared to June took the industry and market by surprise. While announcements by China that it would increase tariffs on $75 billion of imports has left outside markets struggling late in the week. This has created active pressure in all contracts with nearby futures holding $2 per cwt losses. Despite limit losses in feeder cattle trade, so far there has been no attempt to test daily limits, but the general weakness in the complex could quickly spark additional late day pressure in all live cattle futures. Cash cattle trade is starting to slowly develop through the morning with Northern regions posting dressed trade at $175 per cwt. This is generally $4.50 per cwt above last week's average. There are a few delayed delivery deals bought by regional packers at $176 to $178 per cwt through the morning. Increased activity is expected in all areas through the rest of the day. Some of this trade may be delayed until after the cattle on feed report in case of any surprises. The bearishness in futures trade may limit the amount of cattle sold once again, causing feeders to carry cattle over to next week's offerings. Boxed Beef cut-outs at midday are lower, $1.89 lower (select) and down $1.40 (choice) with light movement of 49 total loads reported (26 loads of choice cuts, 10 loads of select cuts, no loads of trimmings, 13 loads of ground beef).

FEEDER CATTLE:

Sharp morning losses have flooded the feeder cattle complex Friday morning. A combination of increased beef inventory during July from June levels and uncertainty of the upcoming cattle on feed report has turned September futures limit lower and sharp pressure in all contract months. As we have seen over the last two weeks, it has taken very little momentum to create sharp market reactions. This is likely another one of those examples of how any sense of fear is being multiplied by already nervous traders. Given the extremely wide market swings over the last two weeks, this aggressive market move leaves prices still well above support levels, limiting technical direction shifts at the end of the week.

LEAN HOGS:

The general bearish tone seen through the lean hog complex through most of the week continues to get worse as sharp triple digit losses are testing daily trading limits, and have also blown through long term support levels that had been holding by a thread over the last couple of days. October futures posted a $2.85 per cwt loss, moving prices well below support levels of $62 per cwt and quickly pushing prices under $59.50 per cwt. This is sparking additional technical liquidation across the complex and with combination of weakening fundamentals, trade pressure may continue early next week. Cash prices are lower on the National Direct morning cash hog report. The weighted average price is down $1.02 at $65.10 per cwt with the range from $56 to $70.00 on 6,166 head reported sold. Pork values trickled higher with gains in most primals offsetting sharp losses in rib cuts. Pork cutouts added $0.19 per cwt at $80.13 per cwt with 103 loads traded. Lean hog index for 8/21 is $77.04, down 0.36, with a projected two-day index at $75.94, down 1.10.

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Friday Morning Livestock Market Summary - Cattle Trade Looking Toward Cash Trade

GENERAL COMMENTS: 

The lion's share of cash cattle trade has been delayed until Friday since limited packer interest showed up just in the last couple of days. So far, most feeders are unwilling to accept current bids that are steady-to-firm with last week's price levels. Given the recent surge in beef values and this week's slow but steady growth in futures trade, it is expected that prices will show improvement unless overall futures markets would happen to fall apart through the day. Futures trade is expected to remain generally firm as follow-through support is moving back into the complex. Traders will get their first chance to trade Thursday's Cold Storage report, which reported 455 million pounds of beef in warehouses. This is a 12% jump from June levels but is 6% under year-ago levels. The indication that year-over-year clearance remains good, with the larger amount of cattle inventory through the year remaining positive, but traders are likely to be uneasy at the size of month-over-month growth, and what this may indicate for short-term beef demand. It is expected that traders will not spend much time on the Cold Storage report with the Cattle on Feed report released after trade closes Friday. This will likely cause some additional market adjustments ahead of the report.

Lean hog futures continue to erode through late week trade with increased pressure developing in cash and pork cutout values. The underlying weakness in the market has an opportunity to break through support levels before the end of the week in nearby futures. This could add more widespread pressure through the weak lean hog market structure. The potential for end-of-the-week buying to step into the complex is developing given the oversold status of the complex and limited additional direction in the market. But traders still face a generally bearish market structure given the trade uncertainty and overall availability of hogs and pork in the system. Cash bids are expected steady to $2 lower with most bids $1 lower. Expected slaughter Friday is at 471,000 head. Saturday runs are expected at 128,000 head.

	BULL SIDE		BEAR SIDE
1)	Beef in storage fell 6% from year-ago levels. This is expected to spark some long-term overall support as traders focus on the big picture of continued market moves through the last year even though active production continues to develop.	1)	Beef inventory levels surged higher in July from month-ago levels. This increase comes as a general surprise, but this will help to solidify the expected aggressive marketing levels estimated in the afternoon Cattle on Feed report.
2)	Traders are looking for steady-to-higher cash cattle trade through the day. Limited moves early in the week have set up cash markets for a showdown Friday as feeders feel like their backs are against the wall, and they are unlikely to be in a mood to move more than their share at the end of the week to get any deals done.	2)	Choice boxed beef values tumbled for the first time in nearly two weeks with values falling $2.46 per cwt. This could indicate additional weakness starting to develop in wholesale beef values over the aggressive two-week rally.
3)	Total pork supplies fell over the last month, reporting a 97% level from June levels. Rib and belly clearance led the market based on seasonal support during the month of July.	3)	Lean hog futures continue to hover just above long-term lows set last week. A move below $62 per cwt in spot October contracts could spark renewed liquidation in the complex.
4)	Lean hog futures remain oversold, given the inability to hang onto early week support. This could spark some end-of-the-week buyer support in the complex.	4)	Pork values continue to remain weak, which added to the concern that no sales were reported to China in this week's export sales report. Underlying fundamental weakness is still holding in the entire hog complex.

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Thursday Morning Livestock Market Summary - Follow-Through Cattle Support Expected

GENERAL COMMENTS:

Cash cattle activity through the rest of the week will become a larger focus of the market as packer bids have been generally quiet through the first half of the week. A few cattle were sold in the South at $105 to $107 and $172 to $175 in the North Wednesday afternoon, but this is not enough movement to establish any sense of market trend at this point. Packer interest is expected to improve through the day, although active trade may be delayed until sometime Friday, and potentially after the Cattle on Feed report Friday afternoon. Asking prices remain at $108 in the South and $178 in the North. Futures trade is expected to open steady to higher with limited but supportive follow-through buying moving into the complex. The ability to add consistent but firm support to the weak market complex continues to add uncertainty to the entire complex as traders focus on trying to rebuild following last week's losses and establishing fundamental and technical support through the end of the week.

Active pressure developed Wednesday afternoon in lean hog futures, sparking additional uncertainty in the complex. This may add even more weakness as traders look for short-term support. Continued pressure in pork values, and the inability for cash hog values to stabilize through the early half of the week has quickly created moderate futures pressure. October futures led the complex lower, moving to $63.30 per cwt. Although prices still remain well above long-term support levels set last week, the inability to string together consistent gains in nearby futures and break away from the weaker trend is still concerning and could add to another test of market lows in the near future. Cash bids are expected steady to $1 lower with most bids steady to weak. Expected slaughter Thursday is at 483,000 head. Saturday runs are expected at 128,000 head.

	BULL SIDE		BEAR SIDE
1)	Wholesale beef values continue to march higher with increased buyer support helping to solidify the higher price levels. This is helping to create limited but firm support in live cattle futures during the week.	1)	Cash cattle trade still remains under pressure following last week's market weakness and general pressure in futures trade. This could limit packer interest through the end of the month, keeping cash markets subdued.
2)	Active support continues to develop in feeder cattle trade as traders focus on rebuilding market confidence through the complex. Triple-digit gains has helped to spark increased underlying buying interest in nearby and deferred futures the last couple of trading sessions.	2)	The recent surge in wholesale beef values has the potential to bring sticker shock to retail prices heading into the Labor Day weekend. The aggressive moves higher at the beef counter could quickly limit short-term beef demand.
3)	Active packer interest through the week has continued to accelerate slaughter numbers. This is creating the need to uncover additional market-ready hogs in order to fulfill these aggressive plant runs. This needed buying should limit downside movements in cash trade.	3)	Sharp triple-digit losses flooded nearby contracts as traders quickly liquidated positions late in the session. The inability to spark additional buyer support may significantly limit the upside market potential.
4)	The real threat of African swine fever in China and other areas of Asia cannot be forgotten. This has and will continue to limit world supply of pork and create a long-term need for pork, despite ongoing trade issues with China.	4)	Aggressive losses in pork cutouts and cash hog values midweek has continued to put a limit on market support. Given the large numbers of hogs in the system and uncertainty concerning the desire to buy U.S. pork to meet global demand due to trade issues, additional price pressure may continue over the near future.

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