DTN Early Word Livestock Comments

Tug-o-War Between Feedlots, Packers

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Higher Futures: Mixed Live Equiv: $207.77 -$0.51*

Hogs: Lower Futures: Mixed Lean Equiv: $92.46 -$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:

Live cattle futures traded in a range of less than $1.00 Thursday. Traders were torn between the prospects of tighter beef supplies and the disappointment of cash so far this week. Cash sales were steady in the South and $0.50 higher in the North. This could change as packers need to purchase what they need to fill the week. Boxed beef prices were mixed with choice down $1.26 and select up $0.55. There is growing concern over a potential global recession that could impact the market. JP Morgan reported retail traders unloaded $3.1 billion in assets during the past week, which is the third worst week of selling in history.

Hog futures continued under pressure. February reached support at the low of mid-December and was able to bounce. With the market oversold, this may have set the stage for a bounce Friday ahead of the weekend. However, cutouts continue to exhibit weakness with a loss of $1.51 Thursday. The increase in cash of $0.92 Thursday reported on the National Daily Direct Afternoon Hog report may have little impact on the market as cash is expected to be lower Friday. Slaughter pace is strong and hog weights are higher, putting more product on the market. Saturday slaughter is estimated at 431,000 head.

BULL SIDE BEAR SIDE
1)

Cash cattle should trade steady to higher this week, which should at least provide support to the market.

1)

The rise of beef prices may be slowing as consumers may be near a level of price resistance.

2)

Packers need more cattle to round out their purchases for the week. Feedlots do not seem anxious to sell, which may cause packers to pay higher to get what they need.

2)

Cattle futures seem to have run out of steam as traders have pulled back this week.

3)

February hog futures reached support from mid-December from which they rallied from at that time. Traders might be willing to buy futures more aggressively for the short-term Friday.

3)

February hog futures have been falling, but still carry a significant premium to cash.

4)

Lower pork prices should increase the buying interest from consumers as they look for value at the grocery store, keeping product moving.

4)

February hog futures have a chart gap remaining below the market that may be filled before technical traders will be interested in buying more aggressively.

**

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