DTN Early Word Livestock Comments

Trade to Focus on Export Sales

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Lower Live Equiv: $239.19 -0.26*

Hogs: Lower Futures: Mixed Lean Equiv: $130.67 -0.54**

* 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:

The standout news Wednesday was the weakness of boxed beef. After a seemingly ending rise of prices, choice cutout declined $0.43 with select down $0.21. Is it possible that Memorial Day will actually top the market? It certainly is plausible that demand may slow, but prices still may remain high as consumers want beef and have sufficient disposable income to spend on it. Cattle futures could not find sufficient support to close higher. Cash was traded about steady with Tuesday with cattle in the South $1.00 higher at $119 to $120 while trading in the North was steady, averaging $191. However, there were a few cattle traded lower. This may not be an indication of what may happen the rest of the week, but it does raise a bit of concern. June futures point to the idea cash may trade lower and that seems to be more realistic as the days and weeks progress. Weekly exports sales will be released Thursday morning, which will contain a large revision by the USDA due to the reporting error last week. A sale of 33,700 metric tons (mt) to the Netherlands was reported instead of the actual sale of 34 mt. This correction will be made Thursday on the report.

The June, August and October futures contracts were able to post new highs Wednesday before slipping back. June was the only contact closing slightly higher. Both cash and cutouts were weaker with the National Direct Afternoon report down $2.51 and cutouts down $0.54. Packers are not aggressive as the overall kill may be less due to the Memorial Day weekend. However, packers have been able to purchase what they need without having to be aggressive as hogs need to be marketed on a consistent basis. Weekly export sales will be released Thursday morning and exports to China will be the main focus. Estimated Saturday slaughter is 24,000 head.

BULL SIDE BEAR SIDE
1) Grain prices are less expensive, which may allow feedlots to hold cattle for a better cash price. 1)

Boxed beef prices slipping Wednesday may indicate demand may be topping and though prices may remain high, packers may not bid higher for cattle anytime soon.

2) Another week of no worse than steady cash prices may indicate a strong base has been built under the market. Cash should not decline with weaker boxed beef as packers have very strong margins. 2) The technical action in cattle futures Wednesday may indicate the short-term uptrend is over. Weekly export sales will influence trade Thursday. USDA will correct the reporting error last week, which will be negative.
3)

Pork demand should remain strong over the next month or two. Price has not yet slowed demand.

3) Further weakness of cash may indicate the market may have reached a peak. Supplies continue to remain available with packers able to obtain sufficient supply.
4) New contract highs again Wednesday suggest the trend higher remains intact. Traders should continue to buy breaks. 4) Export sales will need to be strong or futures could retrace further leading up to the holiday weekend.

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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