DTN Early Word Livestock Comments

Hogs Futures May See More Pressure

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $173.57 -2.46*

Hogs: Steady Futures: Mixed Lean Equiv: $101.05 +2.50**

* based on formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. Index has been updated to depict recent changes in live cattle weights and grading percentages.)

** based on formula estimating lean hog equivalent of gross packer revenue

General Comments:

Live cattle bounced after making new lows for this move, potentially indicating that traders thought futures were low enough to re-establish long positions. The bounce certainly was not due to higher cash or higher boxed beef. In fact, boxed beef price plummeted. So it seems the rebound might have been merely technical with traders trying to bottom-pick the market. Light sales in Texas steady with last week did not bode well for higher prices this week. The drop of boxed beef and the current level of futures may not make packers interested in spending more money. Strong grain prices continue to make it more expensive to hold cattle longer than necessary and feedlots are pushing their pencils very hard. Futures are oversold, but the damage has been done to the charts.

Hogs may follow the direction of cattle for a short period of time as futures, closing below the uptrend line may trigger further selling. However, strong cash again Tuesday indicates buyers want hogs and are not shy about bidding up for them. The past few days were expected to see steady cash, but that has just not been the case. Strong cutouts and strong cash may minimize the duration of the decline of futures. But it also may influence packers to stop bidding higher. There are problems with African swine fever in China, which has resulted in them liquidating some of the nation's herd. This should keep export demand strong.

BULL SIDE BEAR SIDE
1)

Traders may be buying back into cattle futures due to the oversold status of the market. The bounce Tuesday could follow through Wednesday.

1) The bounce of live cattle futures was meager after the large decline of the past two weeks. Funds may be unwilling to step back in to buy.
2) Packers have processed quite a bit of cattle due to higher slaughter numbers. Feedlots intend to hold out for at least $1.00 higher cash. 2) Packers may not be willing to pay more than steady again this week, which may cause some feedlots to throw in the towel.
3)

Surging cash prices do not indicate packers are ready to back down on obtaining hogs. Demand is strong with cutouts rebounding Wednesday.

3) The price correction of hogs may just be beginning. There are a lot of long positions being held by the funds that may be liquidated.
4) Exports to China are expected to remain stronger than anticipated. Ongoing disease problems in the country have extended their time frame for getting their herds rebuilt. 4) Packers may be near having sufficient hogs purchased and may sit back for a period of time as choppy cutout prices may indicate a price threshold may have been reached.

**

For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CST. Also, stay tuned to our Quick Takes throughout the day for periodic updates on the futures markets.

Robin Schmahl can be reached at rschmahl@agdairy.com

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]
P[R1] D[300x250] M[300x250] OOP[F] ADUNIT[] T[]
P[R2] D[300x250] M[320x50] OOP[F] ADUNIT[] T[]
DIM[1x3] LBL[] SEL[] IDX[] TMPL[standalone] T[]
P[R3] D[300x250] M[0x0] OOP[F] ADUNIT[] T[]

Robin Schmahl