DTN Livestock Midday: Sharp Losses Flood Trade

©Debra L Ferguson Stock Photography

Livestock futures are holding sharp losses midday Friday as continued fundamental weakness is combined with aggressive outside market pressure based on China tariff announcements.

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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