DTN Early Word Livestock Comments
Significantly Lower Cash Trade Surfaces
Cattle: Lower Futures: Mixed Live Equiv: $269.70 -$0.12*
Hogs: Higher Futures: Mixed Lean Equiv: $98.36 -$1.53**
*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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It would seem that cattle futures are overdone to the downside after the sharp decline, but are they? Limited cash cattle trade on Tuesday showed substantial weakness, with Northern dressed cattle trading $15.00 lower and Southern live cattle as much as $9.00 lower. This is the largest weekly cash decline we have seen in a long time. Feedlots may be selling in fear as lower prices are possible in the near term, and heavy cattle need to be marketed. Holding onto cattle to heavier weights is not a profitable endeavor right now. Boxed beef pieces were mixed with choice down $0.40 and select up $0.42. The markets will be closed on Thursday for Thanksgiving.
Hog futures held their ground with summer contracts posting triple-digit gains. Packers were not aggressive with purchases again on Tuesday, as the National Daily Direct Afternoon report showed an average price of $73.25, with no change due to the limited volume of hogs traded. However, the average is lower than on Monday, indicating lower prices. Pork cutout values declined $1.53 and eliminated $1.00 more than the gain on Monday. This keeps the market on the defensive. However, further short covering could take place ahead of the holiday. Hog futures will continue to face some headwind unless the market finds stability and increased demand due to lower pork prices.
| BULL SIDE | BEAR SIDE | ||
| 1) | Even with lower cash trade this week, live cattle futures will hold a substantial discount. This may allow the market to regain some of the loss. | 1) | The substantial weakness of the cash cattle trade on Tuesday sets the stage for the rest of the week. |
| 2) | The rebound on most cattle futures contracts on Tuesday may indicate that the recent bearish news could have been factored in. | 2) | Bearish news will continue to reverberate throughout the market, likely through the rest of the year. Both cash cattle and feeder cattle prices are declining. |
| 3) | Hog futures give the impression they are trying to build support. The oversold market, Thanksgiving holiday and the end of the month might provide further support. | 3) | Limited packer interest this week may provide little support to the market as traders remain uncertain over demand. |
4) | The December hog contract has three chart gaps above the market. Chart gaps are generally filled before the contract closes out. The contract will cease trading on Dec. 12. | 4) | Hog weights have been increasing and may remain significantly higher than a year ago through December. |
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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