DTN Early Word Livestock Comments

Livestock Faces a Tough Week

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Lower Futures: Mixed Live Equiv: $230.52 -0.49*

Hogs: Lower Futures: Higher Lean Equiv: $122.40 -0.38**

* 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 seemed last week was a brutal week in cattle futures, but overall, that was not the case. Feeders closed substantially higher for the week helped immensely by falling corn prices. Live cattle really did not change much for the week after significant volatility. Live cattle were driven lower after rallying during the first half of the week by the disappointment of cash, dismal export sales, and a plant not running on Saturday. It certainly was different for boxed beef prices as they exploded higher, gaining $10.55 for choice and $8.57 for select cuts for the week. That certainly increases the frustration for those who raise cattle. The bright spot is that corn prices fell dramatically since the World Agricultural Supply Demand report. But that is little consolation when the outlook for cash this week does not look any better than last week. It may be a victory if cash can hold steady with last week, but the potential for lower prices are also a possibility.

Hog futures took a beating last week, retracing similarly to the price retracement we had in mid-April. Futures rebounded then with prices making new highs. That may be difficult to achieve a second time. Product prices have been volatile, which at times may indicate a market top. Cash prices have been choppy as well. On top of that, low weekly export sales resurrected the concern over China potentially slowing imports. That was talked about in the market in the past, but now is coming to the forefront again when seeing lower sales. Futures may bounce Monday due to fund selling possibly having found its course as well as the fact that all chart gaps are now closed to the downside. This may gain buying interest from traders to buy this break due to tightening hog supplies.

BULL SIDE BEAR SIDE
1) Lower corn prices may provide some confidence to hold for steady-to-higher cash prices this week. Packers need to continue to purchase cattle to satisfy strong demand. 1) Packers are not expected to bid cash higher this week and may actually start with lower bids due to reduced slaughter levels.
2) The fact that live cattle futures were no worse for the wear from the previous week and feeder cattle posted stellar gains, bodes well for the market. 2) Slower processing speeds with cattle already purchased ahead, might back up supplies of market-ready cattle. That is never a good thing.
3) Saturday hog slaughter numbers are becoming less and are expected to continue to do so. Supply continues to tighten, which may eventually be evident in total slaughter numbers. 3) Packers may be wary of being too aggressive to begin the week and will see what is available for purchase and how cutouts will perform.
4) Chart gaps were closed in futures contracts with the price decline sufficient to relieve the overbought market. Technical traders should step back in. 4) There is no solid indication the selling of hog futures has subsided. Traders will need to buy this break or further downside is possible.

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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