DTN Early Word Livestock Comments
Follow-Through Strength May Be Difficult To Achieve
Cattle: Lower Futures: Mixed Live Equiv: $246.53 -$0.43*
Hogs: Lower Futures: Lower Lean Equiv: $96.57 -$2.69**
*Based on the formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. The 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.
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The action in cattle futures Wednesday would usually be considered a technical key reversal. However, the volatility of the outside markets and the tariff situation may negate this technical action. Cattle futures initially struggled under the weight of added tariffs, only to charge higher after a 90-day pause on tariffs was announced for countries that did not place retaliatory tariffs. Traders quickly bought futures in anticipation of beef demand continuing to remain strong. Cash cattle have not yet been traded as the bids and offers are some distance apart. Boxed beef prices were lower with choice down $0.24 and select down $1.45. Weekly export sales will be released Thursday morning and are expected to be in line with last week.
Hogs came under pressure earlier Wednesday, only to turn after the announcement of a reprieve in tariffs on non-retaliating countries. New contract lows were established in August and later contracts before reversing higher. Spread trading was evident as May through October closed higher while other contracts declined. The front-month April contract closed $0.85 lower as it adjusted to remain close to cash and the index. Monday is the last trading day for the April contract. The National Daily Direct Afternoon Hog report showed cash down $0.75, pulling the average down to $86.06. Pork cutouts took a hit with values down $2.69. Dow futures show weakness overnight, indicating stocks and equities could be lower. This may impact the further strength of hog futures.
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| 1) | Generally, a price reversal as seen in cattle on Wednesday is a strong technical signal and could trigger increased buying interest. | 1) | Cash cattle are expected to trade lower as packers may not be willing to pay more due to export uncertainty. Feedlots may want to move cattle rather than hold only to see lower prices next week. |
| 2) | A delay on tariffs to some countries should keep beef moving through the export market as it has been. | 2) | The sharp reversal in cattle futures was the result of a reversal in the outside markets and not a fundamental change. |
| 3) | The turnaround in hog futures after reaching or exceeding contract lows may increase traders' interest in buying futures for the long term. | 3) | The escalation of a trade war with China is not friendly for pork exports. They are a large buyer of pork from the U.S. |
| 4) | The hog market is oversold, and further short-covering may take place due to low prices. | 4) | Lower cash and cutouts do not provide the support needed for traders to buy into the market aggressively. Traders see uncertainty over demand. |
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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