DTN Early Word Livestock Comments

Cattle Trade Should Be Active

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Higher Futures: Mixed Live Equiv: $216.43 +$0.90*

Hogs: Steady Futures: Mixed Lean Equiv: $104.66 -$2.75**

*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 were under pressure from two fronts Thursday. First, weekly export sales were not supportive due to the numbers being 13% below the previous week. Sales were 15% higher than the four-week average but that provided little, if any support. Second, cash activity did not surface as anticipated, pushing business to the end of the week. The few cattle that did trade Thursday, traded $2 higher at the levels of earlier in the week. So far, feedlots seem to have banded together in hopes that packers will need to be more aggressive than they have been so far. Traders lost confidence over packers paying more than they already have this week. Boxed beef prices were higher with choice up $1.73 and select up $0.50. Futures tried to close the chart gaps left on Wednesday but fell short of accomplishing the task. That may be done early Friday.

Weekly export sales were good, resulting in futures gaping up on the open and never looking back. China was back in the market again as the number two buyer. Export sales were up 55% from last week and up 72% from the four-week average. That certainly was enough to generate excitement. The problem is that cash closed lower on the National Direct Afternoon report with a decline of $0.86. Cutout fell back $2.75 after the large increase Wednesday. Hog weights are steady with last week, indicating supplies are current. Saturday slaughter is expected at 236,000 head. Buffalo Wings, Jimmy Johns and Sonic restaurants have filed a lawsuit against Tyson. Smithfield, Clemens Food Group, JBS USA, Seaboard Foods and Hormel over pricing and production practices. Last year, JBS agreed to pay $24.5 over allegations of pork price fixing.

BULL SIDE BEAR SIDE
1)

Cash cattle will be at least $2 higher for the week. Feedlots may be able to squeeze more out of packers due to the majority of the activity waiting until Friday.

1) Cattle charts have gaps below current levels, which may be filled before prices can move higher.
2)

Price remains in an uptrend as fundamentals seem to be turning more bullish.

2)

Disappointing export sales may hold a cloud over demand as more beef may be available to the domestic market.

3) Strong export sales with China back in as a buyer indicates pork supply may not back up in the domestic market after all. 3) Hog futures have now left a chart gap Thursday, which will provide a level at which technical traders will target.
4) Stronger futures may lead cash higher. Available hogs may begin to tighten. 4) Cash still has not found a bottom as packers are able to obtain the hogs they need without having to be aggressive. Until cash stabilizes, upside potential may be limited.

**

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

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Robin Schmahl