DTN Early Word Livestock Comments

Mixed Fundamentals Makes for Uncertainty

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Higher Live Equiv: $210.12 +0.38*

Hogs: Steady Futures: Mixed Lean Equiv: $120.27 -1.58**

* 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 the star of the show Tuesday as they traded higher in response to corn futures trading limit down for the entire day. However, that exuberance did not translate into live cattle futures as they closed mixed. There is concern over packers not being aggressive this week as they actually purchased a good number of cattle last week. They may wait to see what feedlots offer before they decide to throw out any bids, and you can be sure those bids may not be much better than steady. Boxed beef prices have fallen substantially, and they do not want to bid more than they need to procure the cattle to keep plants running and demand satisfied. Boxed beef prices were able to moderate to some degree Tuesday with choice cuts up $1.24 while select cuts declined $1.10.

Hog futures showed significant spreading action Tuesday with July and August showing triple-digit gains while later contracts posted losses. Support did not stem from cutouts as they declined $1.58. Retail outlets are assessing pork movement over the holiday weekend before placing orders. Pork exports in May totaled 687.78 million pounds. This was 11% higher than a year ago. China has been a strong buyer of pork so far this year, but there is concern that may drop off as export sales reports show them purchasing lower volumes.

BULL SIDE BEAR SIDE
1)

Cash castle trading activity has been light the past two weeks, which should turn packers more aggressive this week as they need to replenish supply.

1)

Live cattle were unable to move higher in response to the large declines in the grain markets. Traders are not convinced that will impact cash trading.

2) Live cattle futures have been in a sideways trading pattern that may be building solid support under the market. 2) Boxed beef prices continue to struggle with further weakness expected.
3) July hog futures have a price gap remaining that would be closed at $115.50. It only has a week to accomplish that feat. A tall order, but anything is possible. 3) Packers seem to be less aggressive in their quest for hogs. Weakening cutouts and tighter supply leaves them purchasing less, which is reducing chain speed.
4) Hog supplies are tightening, requiring packers to aggressively look for hogs to fill their needs. Current cash buying is slower, but that may be temporary. 4)

The July and August hog contracts moved higher as a result of aggressive spread trading and not the result of higher cash. These spreads may unwind again due to little underlying support.

**

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