DTN Early Word Livestock Comments

Traders Cautious Over Cash Potential

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Higher Futures: Mixed Live Equiv: $198.86 +$0.91*

Hogs: Steady Futures: Higher Lean Equiv: $87.06 +$0.73**

*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:

Nearby cattle contracts were able to close slightly higher as higher cash is expected this week. Cattle have not traded yet with both feedlots and packers holding out again. It is possible some trade may take place Thursday as packers need to obtain cattle and may not be able to afford holding back another week. The WASDE report provided estimates of beef production and prices with those being somewhat neutral. The increase in beef production of 50 million pounds for the year was a bit of a surprise as the projection is for tighter supplies; but the average price was raised by $0.50 to $159. Weekly export sales Thursday may provide more price movement depending on the level of sales. Boxed beef prices were mixed with choice up $0.48 and select down $4.17. Feeder cattle were unable to find any solid footing, even though there continues to be strong demand for cattle and calves in the country.

Hogs found support even though cutouts were lower Tuesday. Packers were more aggressive on both Tuesday and Wednesday, providing further support to the February contract as it closes next Tuesday. The index is creeping up, adding to the support. The National Direct Afternoon Hog report showed cash up $3.51, bringing the current weighted average to $77.58. Cutouts posted a gain of $0.73, which will add to support Thursday. The WASDE report showed a bit of a surprise with USDA estimating pork production 45 million pounds lower than the January estimate. The average price was reduced $1.50 to $66.50, but comparing the price to the December estimate, price was only reduced $0.50. Saturday slaughter is estimated at 98,000 head.

BULL SIDE BEAR SIDE
1)

Cash trading is nonexistent so far this week and delayed trading activity generally results in higher cash.

1)

Live cattle futures already have higher cash factored in, leaving little more potential for the upside this week.

2)

Packers will need cattle to maintain slaughter pace and cannot afford to hold back another week without procuring a significant number of cattle.

2)

Feedlots may need to move cattle as many were held over from last week and feed prices are not getting less expensive.

3)

Cash hogs have been strong the past two days, which may indicate supply might be tightening a bit. Reduced slaughter may be supporting the market.

3)

There remain plentiful hogs available to the market with packers having little difficulty obtaining needed supplies.

4)

Hog weights declined 0.9 pounds last week to an average weight of 285.9 pounds and 3.2 pounds below a year ago.

4)

Hog futures are still in a downtrend and may have a difficult time turning higher with funds traders net-short the market.

**

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