DTN Before The Bell Livestock

Fundamental Strength Keeps Livestock Prices Stable

Elaine Kub
By  Elaine Kub , Contributing Analyst
(DTN photo by Nick Scalise)

GENERAL COMMENTS:

Traders of livestock futures are maintaining a cautious tone Friday morning, refusing to stick their necks out for either more erosion in prices or any serious attempt at regaining the highs from the start of the week. Announcements about feed grains that keep getting sold out of the country sustain the pressure on livestock markets, but otherwise, cash buyers are confident. Corn is trading a few cents higher in active trade. Stock markets are lower Friday morning. Dow Jones is 160 points lower and the NASDAQ is down 90 points.

LIVE CATTLE:

Open: 10 to 25 cents higher. With boxed beef prices as high as they are (choice at $231.99), packers should be willing buyers of fed cattle this week, but the cash market has been holding out for certain numbers and delaying the bulk of the week's trade until Friday, and it could be delayed until late in the day Friday if traders want to see the Cattle Inventory report coming up Friday afternoon before deciding on an outlook. Analyst estimates suggest the report will show lighter figures, but by less than 1%. The smaller the cow herd, the more bullish the report will be for the industry's long-term outlook. Asking prices in the South remain at $115 and higher and in the North at $182 and higher. For now, the Friday futures trade appears neutral, with only light gains of $0.12 to $0.22 noted in the nearby live cattle contracts at the start of the session. Total open interest has been generally growing in this market, perhaps in pre-report anticipation, or perhaps just attracted by the upward trend confirmed this week. On Thursday, however, open interest shed 1,571 positions (329,623). February contracts lost 3,344 positions (36,689) and not all of them were rolled over into the April contract, which added 1,253 positions (140,315). DTN projected slaughter for Friday is 118,000 head.

FEEDER CATTLE:

Open: Mixed. Another huge daily export sales announcement Friday morning of corn headed to China -- the biggest yet this year at over 2 million metric tons -- will be a reminder of the surge of commercial corn futures-buying activity that is keeping feed prices lofty. Corn futures remain above $5.30 all through the summer of 2021 and likewise soybean meal futures are above $400 per ton through that timeframe. In such an environment, deferred feeder cattle futures are likely to face pressure Friday to continue pulling back off their Monday high. Not indefinitely, however -- there is enough fundamental support in the near-term outlook, with the CME Feeder Cattle Index (Jan. 27) up $0.51 at 135.34, to keep the April and May contracts above $142 in early trade. Open interest Thursday lost 243 positions (39,643).

LEAN HOGS:

Open: Mixed. Trading volume at the very start of Friday's trading session has been relatively light for lean hog futures compared to the cattle markets where there is more enthusiasm. With the April lean hog contract at $76.50, it's an awkward position for a trader to establish a new heading, with tailwinds of an upward trend that's added $3 to the market in the past week and a half, but headwinds of chart resistance a dollar above the current price. In outside markets, the U.S. Dollar Index continues to bounce supportively near the 90 level, and strong pork exports continue underlie the overall support from pork demand. On Thursday, open interest gained 265 positions (220,936). February liquidated 1,581 positions (20,918) and April added 627 positions (93,151). Open interest in pork cutout futures added 31 positions (1,227). Cash lean index for 1/27 is 67.29, up 0.34. DTN projected slaughter for Friday is 488,000 head. Saturday runs are expected at 247,000 head.

Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at masteringthegrainmarkets@gmail.com or on Twitter @elainekub.

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Elaine Kub