DTN Early Word Opening Livestock

Hog Market Limit Gains Sparks Additional Interest

Rick Kment
By  Rick Kment , DTN Analyst
(DTN file photo)

Cattle: Steady Futures: Mixed Live Equiv: $150.61 -0.46*

Hogs: $2 Higher Futures: Higher Lean Equiv: $ 78.51 -0.09**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Active buying has continued to move into nearby and deferred feeder cattle trade. Potential pullbacks in the March Cattle on Feed report, or long-term market direction that could come with any announcement of cattle impacted during the recent winter storms and flooding, iscreating underlying support through the entire complex. May feeder cattle contracts have now rallied $6 per cwt in the last week, and have broken through November 2018 highs. This is helping to solidify additional volume through the entire complex. Cash cattle trade remains inactive at this point, although the focus will continue to be based on end of the week activity as most trade will not get going until sometime Friday.

Sharp gains are expected to continue in cash hog values as traders seem to be looking past the midweek softness in wholesale pork values and are encouraged by the limit gains in futures trade. Packer bids are expected to be steady to $2 per cwt higher with most bids $1 to $2 per cwt higher. Futures trade is expected to be sluggish early Thursday morning as trades anticipate additional export sales to China in the weekly export sales report. This has created much uncertainty, but traders clearly have gambled on the side of active product movement in order to push prices limit higher midweek. This latest round moved April lean hog contracts to new contract highs, a swift change from contract lows just one month ago. Expected slaughter Wednesday is pegged at 474,000 head, Saturday runs are expected at 164,000 head.

BULL SIDE BEAR SIDE
1)

Summer buyer support in feeder cattle trade has sparked increased focus on potential cattle supply issues. This moved August futures to contract highs Wednesday, opening the door for additional active buying through the rest of the week.

1)

Boxed beef values slipped lower midweek. The lack of support in the complex has yet to trigger significant concern, but the break from the previous upward trend quickly gained the attention of many traders and market observers.

2)

Nearby live cattle trade has rallied $3 per cwt higher in the last week, once again nearing long-term resistance levels of $130 per cwt. The aggressive feeder cattle support developing through the week may be just enough to break through this year-long price cap.

2)

Limited movement is expected in the March Cattle on Feed report with early estimates of cattle on feed at 99%. This lack of movement from year-ago levels may keep markets generally calm, but show little evidence of tight supplies at this point.

3)

Widespread buying pushed all nearby contracts $3 per cwt higher Wednesday. This is the second limit gain in less than a week, as traders continue to focus on expected demand growth in domestic and export markets.

3)

The $21 per cwt rally in spot April futures in the last month has sparked incredible buyer support. But after setting contract highs, the risks of an aggressive market correction are growing with each trading session.

4)

Surging cash hog values have packers digging into their pockets in order to gain needed procurement levels. Any demand surge will likely peak pork values and improve margins.

4) Following an aggressive market surge of nearly $10 per cwt in the last week, pork cutout values softened slightly Wednesday. The amount of price pressure is not as much of a risk to market direction as the strong triple-digit pressure in loin and picnic cuts.

Rick Kment can be reached at rick.kment@dtn.com

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Rick Kment