DTN Early Word Livestock Comments

Markets Seem to be Bearishly Optimistic

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Lower Futures: Mixed Live Equiv: $207.03 +1.42*

Hogs: Higher Futures: Higher Lean Equiv: $120.15 -1.39**

* 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:

Just when we thought traders gained confidence to buy the break, the opposite happened. Cattle plummeted Wednesday, erasing the gains of Tuesday. Increasing grain prices are relentless, and feedlots do not want to play poker, so they folded in order to move market-ready cattle as quickly as possible. Packers took advantage of the current weakness of futures and increasing feed prices to bid lower. Some feedlots took those bids Wednesday anywhere from steady to $3.00 lower. Accepting lower bids might be the lesser of two evils. It is almost a given that cash will not trade higher the rest of this week. The selling pressure Wednesday might carry over Thursday before traders will turn their attention to the Cattle on Feed report due to be released on Friday. Boxed beef was again solidly higher, indicating strong demand. This has packers giddy as they can pay less for cattle and get more for product.

Hogs futures turned tail after initially opening higher. Spillover pressure from cattle seems to have had an influence. Higher grain prices are also beginning to have an impact on trader psychology. Farmers may want to move more hogs to the market pressuring prices, but that will also compound the tightness of supply later this year. Cash was higher Wednesday, but cutouts were lower. Demand resistance still has not been reached and should limit downward pressure on futures. Pork exports will be key to price direction Thursday as well as Friday. Saturday hog slaughter is projected to be 63,000 head.

BULL SIDE BEAR SIDE
1) Boxed beef showed significant gains Wednesday, indicating continued strong demand. 1) Cattle futures could not hold the bounce on Tuesday, increasing the bearishness of the market.
2) Futures are oversold and ready to bounce and potentially retrace some of the heavy losses over the past two weeks. 2) Escalating grain prices will put pressure on feedlots to move cattle as quickly as possible, resulting in lower cash.
3) May hogs made a new contract high before falling back. This keeps the market in an uptrend for the front-month contract potentially moving later contracts into a sideways range. 3) Recent hog futures price action seems to indicate a top has been reached for the time being in later contracts.
4) Chinese officials indicate pork imports will continue to increase over the level they imported in 2020. First quarter imports already have been higher than the same period last year. 4) Another week of lower pork exports could have a substantial impact on the market. Supplies would begin to back into the domestic market, requiring continued strong demand to absorb it.

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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