DTN Early Word Opening Livestock

Sluggish Moves Expected at Opening Bell

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

Cattle: Steady-$2 Higher Futures: Mixed Live Equiv: $142.23 +0.37*

Hogs: $1 Higher Futures: Mixed Lean Equiv: $ 75.10 +0.79**

* 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 business should move into full swing at some point during the day Friday, although the likelihood of late-day trade is developing given the overall lack of market direction in futures trade and sluggish interest so far this week by both packers and feedlot managers. Asking prices are set to be restated at $125 and higher live and $200 dressed, while packers are likely to step back to the market with bids of $119 live and $192 to start out. Futures activity should remain sluggish through the first couple of hours of trade, with the focus on increased buyer activity late Thursday as traders search for follow-through support with prices near contract highs. Even though markets have been unable to move higher through the last two sessions, the inability to sustain any market liquidation is pointing to a still strong market trend.

Firm gains in cash trade are expected to continue midweek with bids steady to $1.50 per cwt higher. Most bids are expected to be 50 cents per cwt higher following the continued buyer supportfrom last week and expected additional strength developing in futures trade. Futures trade is expected to remain directionless at the end of the week with traders trying to hang onto the hard-fought gains from the last two weeks. With spot month contracts nearly $4 per cwt over December lows, the inability to continue to shift prices higher will likely add to market erosion. Hog slaughter is expected at 469,000 head Friday. Saturday runs are expected to hit 191,000 head.

BULL SIDE BEAR SIDE
1)

Sharp pressure in corn and soybean markets has allowed for feeder cattle traders to focus on lower production costs. This has the potential to spark some additional underlying support in nearby feeder cattle through the next week.

1)

Limited support in beef cutout values through the week is creating questions if beef fundamentals are able to follow the recent renewed support across the live cattle trade. Without a swift shift higher in beef values in the next couple of days, market futures softness is likely to develop.

2)

The strength in live cattle futures is expected to support cash cattle buying through the end of the week with feedlot managers expecting to hold onto firm asking prices in order to cause packers to move prices in an upward direction.

2)

With nearby live cattle futures hovering near contract highs, there is little incentive to bring additional buyer activity back to the table this week. Prices are likely to remain directionless for an extended period of time, as a lack of support may be met by a swift correction.

3)

Spot month lean hog futures are trading at the highest level in nearly a month. This is sparked by continued underlying support in cash values and renewed commercial interest moving into futures trade.

3)

Without a clear direction from the recent trade talks with China, the pork complex seems to be going through withdrawal. Although the potential for supporting trade is developing, the movement in the pork complex at the end of the week resembles a kid's disappointment of Santa not delivering the coveted gift.

4)

Pork values have shifted higher at the end of the week. This is expected to spark additional underlying support through the entire complex in the next couple of days.

4)

Cash buying support seems to be fading slightly at the end of the week with packers less aggressive to source higher priced hogs. This could leave the market generally tepid in the upcoming days.

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

(BAS)

Rick Kment