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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 
Sept. 23.


   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 kmentrick@gmail.com

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