DTN Early Word Livestock Comments

Futures May Struggle to Move Higher

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Higher Live Equiv: $203.46 -1.95*

Hogs: Steady Futures: Mixed Lean Equiv: $124.46 +1.29**

* 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 certainly was a victory for live cattle futures to close positive even though grain futures were higher and choice cuts of beef plummeted $3.59. The fall of boxed beef prices seem to be relentless. Select cuts were able to post a gain of $1.36, offsetting some of the bearishness of the market. The cash market was not tested Monday as is usual for a Monday. It is not likely we will see anything Monday as showlists are being looked over and both packers and feedlots may play the waiting game to see who needs to be more aggressive. The Commitment of Traders report showed funds as net sellers of 2,844 futures contracts, reducing their net-long position to 62,881 contracts.

Hog futures put in a very good day Monday, but it seemed more technically driven rather than fundamentally. Cash on the National Direct Afternoon report fell $4.12, which resulted in a premium of July futures to cash. July will go off the board on Thursday rather than the usual 14th of the month due to the holiday last week. It will be interesting to see what will take place over the next three days. Pork cutouts increased $1.29, offsetting some of the cash weakness. With lower cash, it may be difficult for futures to trend higher in the near-term. Packers see little need to be aggressive, relieving them of the need to scour the countryside to find market-ready hogs that are less available. The Commitment of Traders report showed funds as net sellers of 462 futures contracts reducing their net-long positions to 67,939 contracts.

Bullish (two cattle, two hog bullish points)

The World Agricultural Supply and Demand report Monday was somewhat neutral. The market has adjusted with feed prices remaining manageable. This should allow feedlots to hold cattle for a better price.

BULL SIDE BEAR SIDE
1) The World Agricultural Supply and Demand report Monday was somewhat neutral. The market has adjusted with feed prices remaining manageable. This should allow feedlots to hold cattle for a better price 1) Cash is not expected to show an increase this week, which may keep futures on the defensive.
2) Live cattle were able to hold Monday, possibly indicating support may have been found. 2) Even though packer margins still remain strong at over $400 per head, weakening boxed beef will leave them less aggressive in the cash market.
3) July hogs still have a chart gap remaining $3.00 above the Monday close with three days remaining to trade the contract. 3)

The sharp decline of cash hogs Monday is not supportive to the market. This may limit upside potential of futures.

4) Strong futures Monday indicate traders remain interested in purchasing contracts due to the prospect of tightening supplies and good exports. 4) Hog futures may move in a sideways pattern at best for the time being as the market tries to find balance.

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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