DTN Before The Bell Livestock

Continued Cattle Market Pressure Develops

Rick Kment
By  Rick Kment , DTN Analyst
(DTN photo by Nick Scalise)

GENERAL COMMENTS:

Follow-through losses are evident in feeder cattle futures Tuesday morning following additional gains in corn prices. The live cattle complex is trying to create some much needed market stability, although mixed price moves are limiting any significant efforts to rally market prices. Following two days of active gains in lean hog futures, traders are backing away from the complex, allowing price pressure to slowly develop. Corn is trading higher in light to moderate trade. Stock markets are higher in limited morning trade. Dow Jones is 140 points higher with NASDAQ up 93 points.

LIVE CATTLE:

Open: Mixed. Live cattle futures are desperately searching for price stability and any sense of market support early Tuesday morning. This is allowing for limited but welcomed short covering moving into nearby contracts during the early minutes of trade. The ability to secure and hold these narrow gains through the rest of the morning will go a long way in helping to curb further price pressure in the coming days. Even following Monday's sharp losses, spot February contracts still remain well above December support levels at $110.77 per cwt, leaving the market once again within a wide sideways trading range. If prices are able to maintain current price boundaries, further widespread market swings of $2 to $3 per cwt could develop without creating significant technical signals. Cash cattle interest is quiet to say the least. Feeders still remain aggressive with asking prices at or above $114 per cwt live in the South, while Northern cattle have yet to be priced. Packers are sitting back and watching the market direction at this point in the week, with bids possibly not surfacing until midweek or later. It is likely that although packers seem to need cattle to fill a full month of procurements, most will be willing to hold out until the last half of the week in order to advance their position. Open interest slipped 714 positions (291,880). February contracts lost 3,732 positions (105,760) and April contracts fell 100 positions 82,000). DTN projected slaughter for Tuesday is 119,000 head.

FEEDER CATTLE:

Open: 25 cents to $1 lower. Confined by additional grain market support and further gains in corn prices, combined by aggressive bearish signals seen Monday, traders are taking a defensive tone once again in early trade Tuesday morning. Although nearby contracts are limited to losses of 25 to 40 cents per cwt, the building pressure in summer and fall contract months indicates that this recent market shift may not be as short lived as previously hoped. The ability to find any sense of support levels in the next couple of days will be essential in order to bring buyers back to the table and limit further widespread contract liquidation. Cash index for 1/1 is $136.55, down 0.22. Open interest Monday fell 726 positions (42,905).

LEAN HOGS:

Open: Steady to $1 lower. Given the continued pressure in cattle futures and lack of active movement in cash or pork values during early-week trade, lean hog futures have retracted a portion of Monday's gains with most contracts holding narrow losses Tuesday morning. February futures continue to lead the market lower as traders are trying to adjust to what is expected to be a more logical base market price given the recent futures strength. But at this point, it appears that spot February futures are successfully defending support levels of $70 per cwt. The ability to hold prices at or above these levels would help to instill longer lasting market support through the next few days. Cash hog bids are expected $1 lower to $1 per cwt higher, with most bids steady 50 cents higher. Open interest added 4,235 positions (198,111). February gained 1,048 positions (78,353) and April added 1,519 positions (47,281). Open interest in pork cutout futures added 188 positions (1,070). Cash lean index for 12/31 is $60.62, up 0.55. DTN projected slaughter for Tuesday is 488,000 head. Saturday runs are expected near 385,000 head.

Rick Kment can be reached at rick.kment@dtn.com

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Rick Kment