MORNING LIVESTOCK REPORT
By Dennis Smith
Follow me on Twitter @denniscattle
Tuesday June 2, 2020
On the hard down yesterday open interest edged up slightly, rising by 365. Open interest was lower in the June and July and higher in all other contracts with the exception of Oct (down 77). What I’m trying to do is identify a change in the money flow. I’m obviously looking for a bottom and trying to see if/when some real money enters the market either long or short. Sellers were empowered by Chinese headlines yesterday suggesting the Chinese would not be purchasing soybeans and pork from the U.S. By the end of the session we had confirmation that Chinese crushers had purchased three cargos of U.S. soybeans. Hogs never recovered from their selling. Many contracts closed near their opening prices. The cutout continues to drop which is a surprise to me. I expected values to stabilized near $90. That’s clearly not happened with yesterday’s cutout quoted at $81.04. Pork is no longer expensive. I’m expecting confirmation on the upcoming hog & pig of large sow liquidation.
Cattle closed lower yesterday with the cash market also trading slightly lower. We have confirmation of trades in TX and KS at 118, down 2 cents, NE at 118 and a wide range in the beef from 178 to 187 and IA reported trade in the meat from 180 to 187. We’re holding the Jun/Aug bull spread from 40 under and need to watch this spread closely over the next couple of sessions. If cash is going to be established near $1.18 this week, I’d expect the spread to hold together. Beef continues to break and my sources are telling me this will continue during the course of the week. The most bearish traders suggest choice beef will be trading at $250 by the end of the week (closed yesterday at $341). I’m not in that camp. COVID-19 is hitting Brazil hard including their packing industry. JBS will downplay this. If the virus cripple’s meat production in Brazil like it did in the U.S., one would expect world meat prices to stop going lower. We are starting to hedge cattle for late summer and fall production. I don’t see how the backlog will ever get cleared through aggressive chain speed. Thus, the industry will have to place their way out of the mess. Cattle weights, I suspect, will be enormous by the end of summer. Can’t really visualize anything but a lower trending cash steer market during the slack demand summer season.
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