DTN Early Word Livestock Comments

Feedlots Will Hold for Higher Cash

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Higher Futures: Higher Live Equiv: $208.28 -$1.53*

Hogs: Mixed Futures: Mixed Lean Equiv: $93.97 -$0.17**

*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 showed positive trade with futures closing higher. Feeder cattle finally found buying interest as traders reacted to the significant pressure on corn. Feeder cattle traded higher at an auction Wednesday in Oklahoma. Traders were more confident to buy live cattle futures yesterday as no cash business was done increasing the likelihood of higher cash this week. February cattle futures will remain close to cash and an increase will result in futures moving higher. Boxed beef prices were mixed with choice taking a beating Wednesday with a decline of $4.05 while select found further strength gaining $1.77. The drop of choice cuts yesterday will not impact the desire of packers to maintain a strong slaughter pace as they want to meet demand and will pay up to obtain the cattle they need.

February hogs closed at the lowest level since Dec. 15. The large price increase since then was fueled by the anticipation of strong demand through the end of the year. Demand might have been good, but it was not reflected in cash or cutouts. We have seen nearly steady deterioration since then. The National Direct Afternoon Hog report Wednesday showed a loss of $1.22 while cutouts slipped $0.17. Weekly hog weights showed a significant change, gaining 6.7 pounds and averaging 289.9 pounds last week. The average weight is 1.5 pound below a year ago. The current slaughter pace is putting more tonnage on the market. Saturday hog slaughter is estimated at 431,000 head.

BULL SIDE BEAR SIDE
1)

Pushing cash trade to the second half of the week is generally a good sign for higher prices. Feedlots are not anxious to sell.

1)

Continued higher beef prices will eventually impact demand as consumers back away from purchases. High prices cure high prices.

2)

Packers have been seeing good demand with improving margins. They will pay higher prices to obtain the cattle they need to keep a strong slaughter pace.

2)

Live cattle futures carry very little premium in futures through the rest of the year, indicating concern upside potential may be limited.

3)

Hog futures have had lower prices the past four days as liquidation gripped the market. That may have run its course.

3)

Even with hog futures declining over the past four days, February still holds a premium to cash. Futures may continue to erode.

4)

Lower pork prices should stimulate greater demand as consumers look for the best value for their money when grocery shopping.

4)

The large jump in hog weights is not a good sign. Marketings may not be as current as previously indicated.

**

For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CST. 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