DTN Early Word Livestock Comments

Cattle Await Solid Cash Activity

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Lower Live Equiv: $197.38 -0.19*

Hogs: Higher Futures: Mixed Lean Equiv: $127.10 -1.51**

* 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:

The cattle complex was under some pressure due to higher grain prices Tuesday. Along with that was the lack of any cash activity that would solidly indicate prices for the week. There were a few cattle traded at steady money with last week, but packers seem to be resisting feedlot asking prices. Lighter weights indicate feedlots are current with marketing. However, this in not concerning packers due to them already having some purchased ahead, allowing them to be less aggressive with buying. Cattle futures are unable to find support as boxed beef prices continue to decline with choice cuts down $1.61 and select cuts down $0.91. Packer margins remain strong, but they will not be charitable either.

Hogs were the beneficiaries of strong cash Tuesday as packers were not shy about purchasing hogs at higher prices. The National Direct Afternoon report showed price up $3.60. The opposite was true for cutouts, which showed a decline of $1.51. Technically, futures are in a positive position with October through February contracts making new highs for the recent move. If the pattern of the recent past is followed, packers will likely remain somewhat aggressive Wednesday in order to procure the needed supplies. If enough can be purchased, they may back off again through the end of the week. August holds a discount to cash, but the volatility seen in the cash market may leave traders unwilling to close the gap too quickly.

BULL SIDE BEAR SIDE
1) Cattle weights are lower and marketing as current. More will need to be purchased to meet demand, which could support price. 1) Cattle futures have been unable to find support. This could give packers greater confidence to bid lower this week.
2) If cash trade is steady this week, it should provide some positive news for the market. 2)

Feedlots seem to be current with marketings, but packers already have cattle bought ahead, leaving them with the upper hand.

3) New highs made in the October through February contracts bode well technically. This should provide traders with more confidence to buy the market. 3) June pork imports by China were down 13.7% from a year ago, totaling 340,000 metric tons. They may require less imported pork as time moves forward.
4)

Stronger cash is expected Wednesday as packers need hogs to keep chain speeds running to keep plants operating efficiently.

4) October hog futures have closed the chart gap to the upside but have a chart gap remaining back at 85.70 that may be filled.

**

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