DTN Livestock Midday: Morning Cattle Market Rally Sparks Optimism

Photo: Blair Fannin, Texas AgriLife Extension

Following widespread market pressure Tuesday in all livestock markets, live cattle trade posted firm early gains. This change in direction over the last two weeks of lower prices has helped to spark active buyer support, pushing prices to triple-digit gains in live cattle and feeder cattle futures.

GENERAL COMMENTS:

Active support in live cattle and feeder cattle contracts quickly flooded the market Tuesday morning. Nearby gains are holding from $2 to $3 per cwt in several contract months as traders focus on the potential that market support may have been established following Monday’s losses.

The weekend fire news at JBS’s Grand Island plant put additional early week pressure on the market, but with the plant in operation Tuesday, the fear of long-term procurement issues has been dismissed. There is still significant concern of market weakness through the entire livestock market, but for now, traders are taking advantage of short-covering opportunities.

Hog futures are showing much less upward price momentum, but the break away from active losses midday is bringing stability to nearby and deferred contracts.

December corn is up 2 3/4 cents per bushel and December soybean meal is down $3.10 per ton. The Dow Jones Industrial Average is down 197 points.

LIVE CATTLE:

Active gains have flooded into the live cattle futures complex Tuesday morning with October through April contracts posting gains of $2 per cwt or higher at midday. A portion of the support follows Grand Island’s plant returning to production following the fire on Sunday but given the constant pressure in the market over the last week, traders are viewing the complex as oversold.

Prices are shifting higher Tuesday, but that does not negate the negative market pressure still developing in the live cattle market. There is likely to be additional pressure developing in boxed beef prices over the near future as choice and select cuts are still coming back to orbit from the aggressive pre-holiday rally.

This is likely to keep prices moving in a moderate but volatile range, but the higher price levels is a significant win for the cattle market and a breath of fresh air for the entire complex. Monday’s lows could very well establish a market support price, which traders can build on through the end of the year.

Cash cattle markets remain quiet Tuesday morning with bids and asking prices not fully established. The wide market swings in futures trade over the last two days will likely add more uncertainty to the market. Packer interest is expected to improve over the next day or two, but it is likely that active trade may be pushed off until Thursday or Friday.

The uncertainty early in the week about plant operations has created some concerns, but it appears that any major procurement disruptions have been avoided, which should bring some stability to the cash market over the next couple of months. The current five-area weekly steer price average has slipped to the lowest level in four weeks, but prices are still significantly above both year-ago levels and the three-year average price.

Historically the second week in September marks the lowest cash price of the fall, giving hope that market firmness can further develop in the coming weeks and months. Tuesday morning’s boxed beef prices are mixed in moderate trade, with choice cuts $0.74 lower at $325.19 and selects up $2.27 at $294.43 on a total count of 86 loads. Dow Jones estimated Tuesday’s cattle slaughter at 117,000, 2,000 less than a week ago, and 4,000 less than year-ago levels.

FEEDER CATTLE:

Feeder cattle futures have quickly and aggressively rebounded Tuesday morning. Over the last two trading sessions, nearby and deferred feeder cattle futures have traded within a $5 to $6 per cwt price range. The aggressive market shift lower seen Monday focused on cattle procurement uncertainty while still focusing on a generally weak market structure.

Even though beef production procurement is generally back online Tuesday, significant questions remain about overall market support in the coming days and weeks. The ability to hold current gains from $2.50 to $4 per cwt through the end of the session will be the first challenge in the feeder cattle complex.

Overall volume has remained relatively light, and it is uncertain just how deep current buyer depth is in the market. This could add late day price volatility, which could quickly change the weekly direction of the market without any significant fundamental market changes developing. The CME Feeder Index was priced at $155.09 for Sept. 10.

LEAN HOGS:

Midmorning gains are holding in lean hog futures with prices 27 cents to 77 cents per cwt higher. The aggressive triple-digit gains in cattle trade have sparked spillover buying support as traders quickly back away from early week losses. It is going to take more than a one-day bounce in price levels to regain traders’ confidence, but the fact that prices have not continued the aggressive downward market spiral is giving some hope through the entire market.

The ability to hold current gains through the end of the session will be the first challenge in order to rekindle longer-term buyer support through nearby lean hog contracts. But the initial direction of trade Wednesday morning will be a more telling sign of potential market shifts in the coming week.

Pork cutout prices surged higher following gains of nearly $26 per cwt in ham cuts. Most primal cuts posted positive price support Tuesday morning. Cutouts are up $8.71 at $109.83 Tuesday morning on 220.20 loads. Negotiated hog prices are $0.79 higher per cwt with a weighted average price of $84.11 per cwt on 7,715 head on the National Direct Morning Hog Report.

The swine/pork market formula price is listed at $92.71 per cwt. Dow Jones estimated Tuesday’s hog slaughter at 475,000, 3,000 less than week ago, while 8,000 less than year-ago levels. The CME Lean Hog Index is estimated at $96.77 for Sept. 10.

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