DTN Early Word Livestock Comments

Hogs are Overdue for a Bounce

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $231.05 -1.28*

Hogs: Steady Futures: Mixed Lean Equiv: $127.46 +0.11**

* 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:

Cattle futures closed Monday with little fanfare as feeders were a bit higher and live cattle were a bit lower. It was not the usual triple-digit gains or losses that we have now become accustomed to. There was little news for traders to go on for market direction, leaving them a little cautious in taking positions. The cash market was not tested with only some light trade in Iowa, but nothing to hang your hat on. It is a good possibility packers will be willing to pay steady money for cattle again this week even though boxed beef prices continue to decline significantly. Choice cuts were down $2.08 with select cuts down $2.15. Grain futures are lower again overnight which should provide some support to the cattle complex.

There is not much to be said about the hog market other than liquidation still has not run its course. Futures tried to hold for a little while earlier in the trading day, but then selling overwhelmed the market. August futures have now fallen to the lowest level since April 29 and have fallen $15.03 over the past seven trading days. The market should be ready for a bounce, but traders need the courage to step back in on the long side. Cash was a bit higher with the National Direct Afternoon price up $0.95 and cutouts with a minor gain of $0.11.

BULL SIDE BEAR SIDE
1) Cash should be no worse than steady this week despite continued weakness of boxed beef. Packers need cattle to satisfy demand. 1)

Boxed beef prices have plummeted with prices generally having a tendency to decline after July 4th demand is satisfied. This could keep further pressure on prices.

2) Lower grain prices should provide some support as lower feed prices provide some leverage for feedlots to hold for better cash. 2) It is unlikely packers will bid higher this week due to continued weakness of beef prices. This may keep a lid on upside price potential.
3) Some hog futures contracts have price gaps above current levels that will need to be filled at some point, requiring futures to bounce quite a bit. 3) The massive price correction in hogs does not yet seem to be complete with August closing limit down. Traders continue to liquidate.
4) Hog supplies remain rather tight with the projection of supply to tighten further as the year progresses. 4) It seems that high prices have cured high prices with the market now trying to find a level at which it will find balance. July futures indicate a significant decline of cash over the next three weeks.

**

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