DTN Midday Livestock Comments 09/27 11:54
Limit Gains in Hog Futures Follow Friday's Report
Lean hog futures have become the clear winner following Friday's bullish
Hogs and Pigs report. With overall hog inventory levels coming in well below
market expectations, December and February futures are trading limit higher at
midday Monday. Cattle futures are under pressure as feeder cattle placement
numbers were not friendly to the market.
By Rick Kment, Contributing Analyst
Trade Monday morning has been full of post-report market adjustments. The
Cattle on Feed report posted bearish news with larger-than-expected cattle on
feed numbers and feeder cattle placed in feedlots during the month of August.
Lean hog futures are showing significant support as tighter-than-expected
inventory levels are driving buyers back into all nearby and deferred contract
months. December and February futures are trading $4.75 per cwt higher at
midday, which is the daily trading limit. December corn is up 10 3/4 cents per
bushel and December soybean meal is up $3.00 per ton. The Dow Jones Industrial
Average is up 141 points with Nasdaq down 109 points.
Trade is limited in nearby live cattle futures Monday morning. Although the
underlying tone of the market remains weak following Friday's Cattle on Feed
report, most of the activity has been centered in deferred live cattle markets
and feeder cattle trade, leaving nearby futures with just light to moderate
losses at midday. Larger-than-expected on feed numbers are negative for the
entire industry, but traders are more focused on increased placement levels,
which will most impact market-ready cattle numbers in the second and third
quarters of 2022. This has April through August 2022 contracts posting the most
aggressive losses of 55 to 75 cents per cwt. It is uncertain just how much
additional weakness will be pushed through the live cattle complex as a portion
of the pressure is expected to have already been factored into price levels
over the last six weeks. Cash cattle markets remain very quiet Monday morning.
This lack of activity is not surprising as feeders and packers are assessing
the current market situation and likely will not show much interest until
midweek or later. There will be increased focus on the weighted average prices
released later Monday morning for last week's trade volume and price direction.
Given the softness in futures trade and lack of support from last week's Cattle
on Feed report, cash cattle markets could remain lackluster at best, with
potential further price erosion by the end of the week. Monday morning's boxed
beef prices are mixed in light trade, with choice cuts $0.76 lower at $302.56
and selects up $0.52 at $275.05 on a total count of 44 loads. Dow Jones
estimated Friday's cattle slaughter at 120,000, steady with a week ago -- 5,000
more than year ago levels.
Feeder cattle futures have not taken kindly to the larger-than-expected
increase in feeder cattle placements during August seen in Friday's Cattle on
Feed report. Not only did feeder cattle placements come in well above analyst
estimates, but placements were 2% ahead of the already large placement last
year. Feeder cattle placements during August were the largest August placement
since the series began and the largest monthly placement since last November.
Placements are expected to follow seasonal patterns with increased movement to
feed yards through the next few months. But the larger amount in feed yards
will likely keep prices under pressure over the next few weeks. This will also
lead to more market-ready cattle during early spring, which could limit overall
widespread support in futures and cash markets late winter. September futures
are essentially dead in the water Monday morning as traders are just waiting
for these contracts to expire. But October through January futures are trading
$2 to $2.50 per cwt lower at midday with no indication that any buyer support
will develop in the near future. Double-digit gains in corn trade are also
adding to the market pressure, quickly increasing overall production costs to
any feeder cattle purchased. The CME Feeder Index was priced at $154.04 for
Lean hog futures have moved sharply higher Monday morning with December and
February contracts locked in limit gains of $4.75 per cwt following
much-tighter-than-expected inventory levels in Friday's Hogs and Pigs report.
With total hog inventory levels at 75.3 million head, total hog numbers have
fallen 3.1 million head from year ago levels. This pullback in production
levels is much more aggressive than the market was expecting, creating price
rallies Monday morning. Although a portion of the bullishness has already been
factored into the market over the last week, the report still took nearly
everyone off guard, and resulted in aggressive triple-digit gains in all
contract months. December and February futures are the contracts where the
tight supplies will be most evident, leading traders to push prices to daily
limits within the first two hours of trade. If either one of these contracts
closes locked in limit gains Monday, this will allow for the entire complex to
trade with expanded trade limits of $7 per cwt Tuesday. This could create
further volatility in the market, which is currently being driven by emotion.
Cutouts are up $5.59 at $116.36 Monday morning on 154.95 loads. Negotiated hog
prices are $0.80 lower at $76.13 per cwt on 4,145 head. The swine/pork market
formula price is listed at $92.23 per cwt. Dow Jones estimated Monday's hog
slaughter at 475,000 -- steady with a week ago and 15,000 less than year ago
levels. The CME Lean Hog Index is estimated at $91.47 for Sept. 23.
Rick Kment can be reached firstname.lastname@example.org
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