DTN Midday Livestock Comments 08/23 11:55
Sharp Losses Flood Livestock Trade
Livestock futures are holding sharp losses midday Friday as continued
fundamental weakness is combined with aggressive outside market pressure based
on China tariff announcements.
By Rick Kment
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.
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).
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.
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.
Rick Kment can be reached at firstname.lastname@example.org
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