Cattle: Steady Futures: Higher Live Equiv: $226.93 +$2.34*
Hogs: Steady Futures: Mixed Lean Equiv: $119.75 -$0.63**
* 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
Cattle finally found the support they needed from significant pressure on corn prices Monday. One day of the movement in futures contracts does not indicate a change in underlying cash, but it does provide some hope feed prices may become a bit less expensive. With corn prices a bit less expensive, it may provide feedlots with some ability to hold out for higher cash prices. However, it has just been one day and it may not translate yet into less expensive grain from feed suppliers. Grain prices will need to be consistently lower for an extended period. The upcoming World Agricultural Supply and Demand report and weather forecasts can change that quickly. There were no cash bids or offers Monday, but it is expected packers will not bid higher. Boxed beef was very strong again Monday as demand is on fire. Dressed cattle weights were down 2 pounds last week from the previous week, averaging 828 pounds, but up 8 pounds from the same week a year ago. The Commitments of Traders report showed funds as net sellers of 6,030 futures contracts, bringing their net-long positions down to 48,865 contracts.
Hogs just could not follow in the same footsteps as cattle. Cash on the National Direct Hog report again showed substantial weakness, down $1.48. Cutouts were also down, which added some pressure. Lower futures have not changed the trend of the market as it is solidly higher, but it does provide cause for concern. We know the market cannot move higher forever as higher prices will eventually reduce demand. However, tight supplies in the midst of strong demand will absorb any extra product that may carry over from one day or one week to the next leaving little opportunity for a build of supply. Packers may need to step back up to the plate again to obtain desired supply. The Commitments of Traders report showed funds were net buyers of 460 contracts, increasing their net-long position to 71,577 contracts.
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Cattle futures broke out of the sideways range they had been in. This may bring traders back to buy more aggressively.
If the only reason cattle futures can rally is due to lower corn futures, the market may have limited upside potential. It needs more than that.
Continued strength of boxed beef will require packers to continue to satisfy demand. If sufficient cattle are not being offered for sale, they may need to increase bids to entice feedlots to sell.
Packers will not bid higher this week unless they have to. With cattle forward purchased, they can afford to wait and see if there is continued willingness of feedlots to sell.
The uptrend in hog futures is still intact and a price correction was needed to relieve a technically overbought market. Traders may buy the break.
Lower cash is of some concern. One has to wonder if some price resistance is beginning to surface.
There is no indication demand has slowed or hogs have become more abundant. Market fundamentals remain bullish.
A price correction could be deeper this time due to the lofty futures prices. Further weakness of cash or cutouts could pressure the market.
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 email@example.com
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