DTN Early Word Opening Livestock

Follow-Through Buyer Interest Expected in Hog Market

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

Cattle: Steady Futures: Higher Live Equiv $132.24 + 0.12*

Hogs: Steady to $1 LR Futures: Mixed Lean Equiv $ 90.43 + 0.67**

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

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

GENERAL COMMENTS:

Cash cattle activity remains at a standstill going into Tuesday morning as packer bids are still undeveloped at this point. So far, asking prices are hard to come by and may continueto be that waythrough midweek. The focus on basis opportunities through the end of the week may be the major focus during early February if cattle futures remain stable over the next several trading sessions. Early activity in futures tradewill likelyremain sluggish with another narrowly moving price range expected to develop through the first few minutes of trade.

Strong follow-through support in lean hog futures markets is drawing additional underlying support back into the complex. This may bring a combination of follow-through buyer support and long liquidation during the morning Tuesday. Traders are still expected to remain focused on firming market trends, although the strong rally over the last week is hard to pass up position-taking opportunities, and may lead to a narrow to moderate price shift through the next couple of trading sessions. Cash bids are expected to remain steady to weak with initial bids as projected daily runs Tuesday pegged at 443,000 head.

BULL SIDE BEAR SIDE
1) Packers are expected to remain short bought through much of the week, although contracts will likely follow the first of the month, which will relieve the pressure a bit. Additional buyer interest may surface as the week continues. 1) Sharp losses seen over the last two weeks in both live cattle and feeder cattle futures have quickly put a damper on the expectations of sustained market firmness through most of the spring. With nearby live cattle futures now hovering near $115 to $116, traders are trying to bring some stability back into the market, and potentially build on potential firming demand.
2)

Feeder cattle futures remain poised for a potential market rally following the aggressive liquidation over the last two weeks. Front-month March futures have posted a $9 market slide through this time period, and with the recent market stability, this is expected to bring commercial buyers back into the market during the next few trading sessions.

2) Sluggish boxed beef values over the last couple of trading days has limited any significant market support through the overall complex. Additional pressure may develop in the near future based on the recent pressure in live cattle trade over the last couple of weeks. This may continue to create softness in cash markets through the first half of February despite slowing short-term supplies.
3) Strong gains in pork primals over the last couple of days brought underlying support into all market sectors through the hog complex. Pork values continue to gain momentumon firm demand, which will push overall cutout values higher through early February. 3) Despite the strong rally in lean hog futures, overall cash hog bids are expected to remain generally steady early Tuesday as packers continue to focus on retaining margins and uncertainty in the overall short-term direction of pork values. This could keep prices shifting higher and lower through the week.
4) Strong follow-through buying in both commercial and investment segments have created a strong market rally through the entire complex. With lean hog futures trading above $71 at $71.35 for the first time since July 2016, additional focus is being placed on current and expected demand as overall hog numbers are starting to tighten during early spring. 4) Even though hog supplies are tighter at this point, the overall tone of the market remains cautious given the expansion through the industry and expected hog numbers likely to be seen through mid to late 2017. This continues to cause uncertainty in deferred price levels and will likely bring more volatility through the entire market over the next several weeks and months.


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

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Rick Kment