DTN Early Word Livestock Comments

Strength in Futures to Continue

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Higher Futures: Higher Live Equiv: $230.62 +1.53*

Hogs: Steady Futures: Mixed Lean Equiv: $120.70 +0.91**

* 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:

Live cattle futures were mixed, but generally higher despite the significant weakness of corn futures. The beneficiaries of the decline of corn were the feeder cattle, which posted triple-digit gains. Further pressure on grains overnight should again benefit the cattle complex. Some cash business took place Wednesday in the South at $119 to $120 with dressed cattle in the North at $191. Further business should unfold Thursday as packers will need to keep purchasing ahead. Boxed beef continues to escalate seeing no price resistance and continually widening the price gap between cash and boxed beef. USDA forecast beef production to reach 27.970 billion pounds this year with production next year slightly lower at 27.405 billion pounds. Exports are estimated this year at 3.227 billion pounds and 3.225 billion pounds in 2022. The estimate for steer price is forecast at $116.30 this year with an increase to $122 next year.

The selling fiasco seems to have run its course despite weakness on the National Direct Hog report Wednesday. Packers were more aggressive Wednesday, remaining intent on purchasing supplies. Tightening supply of hogs will require packers to be more willing write larger checks to obtain those supplies, providing demand continues to remain as strong as it has. The overall futures trend is higher, but there is a technical concern that the break of futures since the end of last week was not enough to close the chart gaps remaining under the market. USDA forecast pork production at 28.236 billion pounds this year, raising production to 28.560 billion pounds for 2022 on the World Agricultural Supply and Demand report. Exports this year are estimated to reach 7.427 billion pounds and 7,425 billion pounds next year. Slaughter Thursday is estimated at 482,000 head. Saturday slaughter is estimated at 15,000 head.

BULL SIDE BEAR SIDE
1) Higher cash cattle would do wonders for the market and it appears that may be accomplished. The limited amount of cattle sold this week indicates the potential for something better than last week. 1) Beef export sales may be the key to continued strength Thursday as steady-to-higher cash may already be factored in. Weak sales could eliminate some of the gains.
2) Cattle futures were able to hold its gains Wednesday supported by weakness of corn futures. Further weakness overnight should provide some confidence to both feedlots and traders alike. 2) Packers have cattle already on hand and may not need to be very aggressive with their purchases this week, which may leave cash prices steady to $1.00 higher at best. Not what feedlots want to see with high feed prices.
3) Selling pressure seems to have subsided for now. Packers were aggressively looking for hogs Wednesday. Even though cash was lower, cutouts were higher. 3) Hog futures were higher in closer months, but just could not hold the triple-digit gains of the day. Traders were cautious to buy back into the break in futures.
4) Continued strong export sales would possibly provide further support to futures Thursday as it would mean both export and domestic demand would need to be met with higher cash to obtain the needed supplies. 4) Export sales will need to be strong or the market could see some continued weakness. It could indicate high prices might have reached international buyer resistance.

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For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CDT. 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