DTN Early Word Livestock Comments

Uncertainty to Dominate Markets

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $224.43 +$1.31*

Hogs: Steady Futures: Higher Lean Equiv: $120.47 +$1.95**

* 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:

It stands to reason live cattle futures would have closed higher Thursday due to ever increasing boxed beef prices. However, the disconnect between cash and boxed beef is large with packer profits around $719 per head. Yet, they have been able to procure cattle this week at mostly steady prices averaging $119.12. Consumers want beef and packers need to keep the market supplied. They are using the advantage of ever-increasing feed prices to their benefit. However, high prices may be having an impact on the export market. Weekly exports showed net sales of only 16,900 metric tons (mt). This was 28% below the previous week and 18% below the four-week average. Price might be getting too high for the international appetite. This may make more beef available to the domestic market. Technically, live cattle futures are attempting to build a level of support with futures moving in a fairly sideways pattern over the past two weeks.

Hog futures struggled for a while Thursday, but, like a child outside a candy store, traders eventually had to come in and buy. Lower futures were too enticing. Only the October contract closed slightly lower. This sets the stage for higher futures Friday. Weekly pork exports were supportive to the market with net sales of 48,200 mt. This was 38% above the previous week and higher than the four-week average. Pork exports for the month of March totaled 728.84 million pounds compared to 591.4 million pounds and February and 701.58 million pounds a year ago. Saturday slaughter is estimated at 15,000 head.

BULL SIDE BEAR SIDE
1)

Live cattle futures were able to close higher despite significant pressure on feeder cattle futures. Follow-through buying might take place Friday.

1)

Continued pressure on feeder cattle and higher feed prices do not provide much hope for a significant price rally anytime soon.

2)

Packers will need cattle and increasing demand and higher boxed beef prices may require them to raise bids and be a bit more aggressive next week.

2)

Cattle futures have not been able to break out of the sideways trading pattern they have remained in over the past two weeks. Traders remain concerned of another leg down.

3)

New highs again were seen in most hog contracts after rejecting selling pressure early Thursday. Traders continue to buy the break.

3)

It is the end of the week and some profits could be taken just in case fundamentals change over the weekend.

4)

Higher cutouts offset lower cash Thursday. Tightening supplies will keep packers searching and bidding aggressively for hogs.

4)

Futures are overbought and due for another price correction. Technical traders are becoming increasingly cautious.

**

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

Robin Schmahl