DTN Early Word Livestock Comments

There Is Strong Hope for Stability

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $204.23 -0.14*

Hogs: Steady Futures: Mixed Lean Equiv: $118.60 -1.31**

* 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:

One has to believe the selling pressure should subside soon. Cattle futures have fallen seven consecutive trading days, pushing the market into an oversold condition. Even though cash cattle traded steady to $1.00 higher last week, rising feed prices and poor exports were the overriding factor. The trend has turned lower for the time being. Packers will use this to their advantage and likely only want to purchase cattle at steady prices this week despite very strong boxed beef prices last week. They will still need to purchase cattle for strong demand, but the market may have turned. Weakening futures generally result in feedlots being more willing to sell rather than wait and continue to feed market-ready cattle and avoid a potential drop of prices. There is one technical consolation, and that is that April and June futures established an inside trading day Friday. However, later contracts did not show the same as they made lower lows.

Hog futures made a valiant effort to stem the tide of selling early on Friday, but that was short-lived, resulting in renewed heavy selling. Fortunately, futures rebounded from the lows by the closing bell. This does not change the concern that further weakness may unfold, but it could indicate that the aggressive selling has dried up. One still wonders why the heavy selling unfolded when cash price increased. The trigger was the market-year low of export sales. This provided the catalyst along with an extremely overbought market. That combination was all that funds needed to liquidate. The fundamental concern of tightening hog supplies remains, but will slower exports continue? China's first quarter pork production increased 31.9% from a year earlier totaling 13.69 million metric tons. China's pig herd increased to 415.95 million head at the end of March, up 29.5% from a year earlier, according to the National Bureau of Statistics.

BULL SIDE BEAR SIDE
1) Cash cattle were steady to higher last week with boxed beef very strong. This combination should stop the bleeding of futures as they may have overcorrected. 1) Cattle futures have fallen seven consecutive days and still not been able to bounce.
2) April and June live cattle futures posted an inside trading day Friday, which may indicate a bottom has been reached. 2) Higher grain prices and weaker futures may increase the desire of feedlots to move cattle earlier rather than later. The fear of lower cash may become a reality.
3) Packers paying higher prices and aggressively looking for market-ready hogs, should make this price dip short-lived. 3) The fall of hog futures in the face of rising cash makes one wonder if the rally is over. The return to higher prices may be difficult.
4) Demand remains strong, which should continue to support the market as packers will need to remain aggressive to meet that demand. 4) The report of a significant increase of China's hog herd over the past year is not friendly to the market. Their pork production increased as well as their hog herd. This is not a good combination.

**

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

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Robin Schmahl