DTN Early Word Livestock Comments

Uncertainty to Dominate the Market

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Lower Futures: Lower Live Equiv: $242.35 +2.95*

Hogs: Steady Futures: Mixed Lean Equiv: $133.85 +0.53**

* 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 is almost similar to a little over a year ago when much of the country and world shut down because of COVID-19. Now, the cyberattack on JBS may have a similar effect. It is unclear how long this will last, but there already is an indication meat prices are rising at the retail level due to the expected shortage that might be experienced until this is rectified. It may be only for a short period of time, but that is immaterial. We saw the impact consumer perception had last year. The JBS plants that shut down handle 25% of the cattle in the U.S. and will definitely have an impact on processing and reduced interest in purchasing cattle this week. Packers are not likely to throw out bids even at steady cash due to the uncertainty, especially when they have cattle already purchased ahead. This is happening right at the time when the CME has increased daily trading limits for live cattle to $5.00 and feeder cattle to $6.25. Boxed beef prices shot higher Tuesday with choice up $3.59 and select up $5.55. Current early bids and offers in cattle futures indicate a lower opening.

Hog futures closed nicely higher Tuesday despite the JBS news as the higher trend continued. However, that may not continue Wednesday as the cyberattack has had an impact on hog slaughter as well with the company handling about 20% of the hog processing in the U.S. It is not indicated that this will impact hogs as much as cattle, but an impact is expected now that more is known. However, looking at early bids and offers in futures contracts, it does look as if the opening might be mixed. Cutouts closed higher Tuesday. Cash bids could be steady Wednesday, but that is unclear as packers assess market impact of the cyberattack. One thing we do know is that there will be a huge effort made to rectify this situation in a hurry.

BULL SIDE BEAR SIDE
1) Boxed beef prices are strong, and packers would like to continue to purchase cattle ahead anticipating the disruption may be short-lived. 1) Packers may lower bids in the country due to the uncertainly of the duration of the disruption of the industry. They already have some cattle purchased ahead.
2) Packers may be willing to purchase cattle at no worse than steady money in the hope of purchasing ahead. Once this is rectified and demand needs to be met, they want to be there with the cattle rather than at the mercy of having to bid higher to get supply. 2) Further pressure is expected on cattle futures as they follow cash and not boxed beef.
3)

Hogs weathered the initial storm Tuesday of the JBS cyberattack as packers were aggressively purchasing hogs.

3)

Packers may back away from the cash market to some extent until they get a better idea of the impact of the cyberattack on pork processing.

4)

New contract highs were posted in June through October contracts, keeping the uptrend intact.

4) Traders may liquidate futures as a precautionary measure to take profits until this disruption is sorted out.

**

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