DTN Early Word Livestock Comments

Inventory Report Provides Little Direction

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Higher Live Equiv: $238.23 +1.54*

Hogs: Steady Futures: Mixed Lean Equiv: $128.90 +1.35**

* 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 struggled all day Monday under the influence of the Cattle on Feed report and some uncertainty whether strong demand will continue into June. What might change the seasonal is that there are greater outdoor gatherings taking place as people are making up for lost time of getting together. Boxed beef continued to increase significantly with choice up $2.66 and select up $1.08. Monday was the eleventh consecutive day of higher boxed beef and was higher 25 of the last 26 sessions, yet cash has not followed. There is concern it will not move much this week as well. Packers seem to be increasing slaughter rates in order to meet strong demand, but the fact that Memorial Day is just around the corner, and potentially slower demand thereafter, the market will need to prove itself. Unfortunately, packers will err on the side of caution and likely not get too aggressive. Total beef in cold storage during the month of April was 453.6 million pounds. This was 29.4 million pounds lower than March and 5% below a year ago and should be considered supportive. The Commitment of Traders report showed funds were net buyers of 3,360 futures contracts bringing their net-long positions to 58,281.

Lean hog futures struggled Monday even though both cash and cutouts turned friendly. The National Direct Hog report showed price, jumping $2.51 along with a pork cutout increasing $1.35. This pushed cutout values above the top price of last year during the pandemic madness. You can say what you want, but even with extra hogs coming from Canada and seemingly less concern for immediate supply, the market is tight and likely to become tighter. Seasonally, demand should remain strong over the next month or two. There is a level at which the market will reach price resistance, but that has not taken place yet. Pork in cold storage during the month of April totaled 455.3 million pounds, an increase of 4.3 million pounds from March. Inventory is 26% below a year ago. Bellies in storage declined 3% from March with inventory 58% below a year ago. This was somewhat anticipated. The Commitment of Traders report showed funds were net buyers of 2,609 futures contracts with total net-longs being held at 49,836 contracts.

BULL SIDE BEAR SIDE
1)

Total beef in inventory for April was 6% below March and 5% below a year ago, indicating strong demand.

1) June cattle futures continue to hold a discount to cash with the trade having a difficult time anticipating or believing cash will increase anytime soon.
2)

The Cattle on Feed report has now been digested compared to trade estimates with traders likely now looking back in comparison to 2019, which should provide support.

2) There was no real surprise with beef supplies in cold storage. This will leave the market searching for continued price direction.
3) Hog futures managed a mixed close with the most pressure targeted at closer months in anticipation of packers remaining somewhat less aggressive. However, that was not the case, which should keep futures strong. 3) Packers were more aggressive Monday, but traders want more proof that cash will continue higher before adding to their long positions.
4) Low pork supply is storage indicates a continued level of strong demand and the inability of the market to increase supply. 4) The market is trying to find a level at which it will slow demand and the higher it goes, the closer the level becomes.

**

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