DTN Early Word Opening Livestock

Beef Demand May be Slowing

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst
(DTN file photo)

Cattle: Steady Futures: Mixed Live Equiv: $150.87 +0.52*

Hogs: Higher Futures: Higher Lean Equiv: $ 72.11 +1.20**

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

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

GENERAL COMMENTS:

Packers and feedlots remain in their usual standoff with cash trade looking more like business will take place at steady or maybe lower prices. The steep decline of cattle futures may give packers the edge in negotiations. However, strong cutout values balance the business. There are some reports trickling in that beef demand is slipping, but there is no concrete evidence of this yet.

Lean hog futures have made an impressive move higher during the past three days as market sentiment seems to have changed. Reports are that the U.S. and China are close to sealing an agreement, which would end the tariff war. Even if the trade war is settled, it will take some time before exports would move back to pre-tariff levels. More reports were released that African swine fever has taken a significant toll on the country’s hog numbers. Chinese pork prices have risen 20% as its own supplies are decreasing. We have yet to see a surge in exports to the country and until we do, the market could still be on shaky ground in the near term.

BULL SIDE BEAR SIDE
1)

Cutouts have been strong, indicating good demand, which should keep packers willing to purchase at no worse than steady cash prices.

1)

Technical damage has been done. This may keep pressure on futures to begin the day as traders will follow the path of least resistance, which is currently down.

2)

A spike down in cattle futures of this magnitude generally brings bottom-picking traders into the market looking for a quick potential for profit. Current fundamentals do not indicate continued lower prices.

2) Indications of slowing beef demand could begin to show up in cutout values in the next few days, which may keep packer bids no more than steady.
3)

The significant rise of hog prices in China may bring more business to the U.S. if the tariff war is settled soon.

3) Reports of the tariff war being near to a resolution has been circulated numerous times and has become an on-again, off-again situation with little evidence it will be settled.
4)

The market has been too low for too long with traders turning friendly to the market, believing demand has been increasing and packers will turn more aggressive.

4) The sharp rise in lean hog futures the last three days may have pushed the market too high, too fast, requiring a price retracement.

Robin Schmahl can be reached at rschmahl@agdairy.com

(BAS)

Robin Schmahl