DTN Early Word Livestock Comments

Further Gains in Hogs Expected

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $217.69 -3.99*

Hogs: Steady Futures: Higher Lean Equiv: $121.89 +5.09**

* 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:

Feeder cattle were under pressure due to the significant increase of grain prices. Live cattle were the victims of some spread trading as nearby months were lower while contracts in 2022 were higher. The influence of the Cattle on Feed report was evident during the day, but the end result did not indicate the market was ready to trend higher. Wednesday is the last trading day for the June live cattle contract, which may limit trading activity until then. There was no cash activity Monday or even an indication of bids or offers. It will be interesting to see what type of prices and when trading activity will take place due to the upcoming holiday as plants may vary their down times on Friday or Monday with no activity on Saturday. Going through another week similar to last week with limited cash activity will not be acceptable to packers as plants need to keep plants running and demand satisfied. Boxed beef prices plummeted again Monday with choice cuts down $7.13 and select cuts down $2.22. The Commitment of Traders report showed funds were net buyers of 5,442 contracts bringing their total net-long positions to 69,015 contracts.

Hogs stole the show Monday with July, August and October closing limit up. This certainly was not driven by cash as the National Direct Afternoon report showed price down $4.36. However, what was lost in the cash market was made up for in cutout values. Cutouts jumped $5.09, a welcome change from last week. Futures were driven higher technically due to an oversold market, but they also may have been influenced by the reduced chain speed that will go into effect beginning Wednesday. It is too early to tell what influence this may eventually have on pork supply and consumer prices. It is expected to impact smaller hog producers in areas. The Commitment of Traders report showed funds as net sellers of 10,787 futures contracts reducing their total net-long positions to 75,716 contracts.

BULL SIDE BEAR SIDE
1) Packers may need to bid up in order to obtain the desired amount of cattle necessary to keep plants running full and demand satisfied. 1) Cattle futures just could not hold higher prices Monday, eventually succumbing to pressure. Spread trading and pressure from lower feeder cattle was too much to overcome.
2)

Light cash trading last week and no activity Monday may indicate feedlots are willing to hold out for higher cash.

2) June futures will go off the board Wednesday and August futures are at a discount to June, indicating traders do not anticipate much upside for cash.
3)

The limit-up gains in futures Monday should see some follow-through Tuesday morning with further short-covering expected by those who could not liquidate Monday.

3) Hog futures uncovered technical support Monday, but that was not supported by the cash market.
4) The large increase of cutouts Monday indicated demand is alive and well. 4) The reduction of chain speed may back up some hogs over time, which may result in reduced cash prices as producers will be more anxious to sell when they can.

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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