DTN Early Word Livestock Comments

Traders Regain Confidence

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Higher Live Equiv: $205.61 +1.31*

Hogs: Steady Futures: Mixed Lean Equiv: $121.54 +0.95**

* 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:

Fund selling and long liquidation finally ran its course. Futures were overdone to the downside, and even if the market would have been bearish, it was high time for a bounce. But that is just it. The fundamentals of the market have not been overly bearish, yet selling pressure continued to trigger sell stops, causing the market to pancake lower. Continued strength of cash and boxed beef prices did not warrant such a sell-off, nevertheless it did. Traders had the confidence to step back in and buy the market due to it being oversold, and because the selling pressure had also subsided. Beef demand through the spring is expected to remain strong, and there is high interest for friends and family to get together with outdoor grilling likely being a favorite way of being together while exercising social distancing. It is possible demand could increase more than it already has. However, futures regaining what was lost may be difficult to achieve. Higher grain prices may bring more beef to the market for a period of time.

Hog futures have been impressive over the past two days as the large break in the market gave an opportunity for traders to either get back into the market or to add to long positions. Cash was again higher Tuesday, continuing to be supported by strong cutouts. Front-month May futures made a new contract high Tuesday as traders anticipate higher cash is on the way over the next month. Higher cutout prices seem to have not yet reached a point of consumer resistance. One point of concern is that May futures left a price gap Tuesday when the market opened. This is likely to be filled at some point. Two more price gaps remain quite a bit lower that are unlikely to be filled before the close of the contract under current circumstances.

BULL SIDE BEAR SIDE
1) The selling pressure in cattle futures has subsided, allowing for a price retracement. 1) Feedlots may be more aggressive, offering cattle for sale as the increase of grain prices is relentless. Steady cash might look attractive Wednesday.
2) Strong boxed beef and the potential for steady-to-higher cash trade should provide support to futures. 2) The fear of another low beef export sales report on Thursday may keep further upside price movement limited.
3) Hog futures have made an impressive bounce, which increases the potential for futures to regain much of what has been lost. 3) May hog futures left a price gap Tuesday, which will likely be closed in the near-term. Later contracts have not been quite as strong technically, indicating a top may have been established.
4) Tightening supplies will keep packers aggressive, looking to get ownership of as many hogs as they can for as long as they can. 4) Continued higher cutouts will eventually reach buyer resistance both domestically and internationally. Any indication of supply backing up, even slightly, may send prices lower.

**

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