DTN Before The Bell-Livestock

Hog Futures Continue Market Rally

Rick Kment
By  Rick Kment , DTN Analyst
(DTN photo by Nick Scalise)
GENERAL COMMENTS

Strong follow-through buyer support continues to develop across lean hog trade. This is following limit gains in nearby contracts Tuesday. Cattle futures have posted further losses as traders remain concerned about the availability of cattle on the market despite firm demand. Corn markets are higher in light early trade. Stock markets are higher. Dow Jones is 43 points higher with Nasdaq up 45 points.

LIVE CATTLE:

Open: Mixed. Initial trade is mixed to mostly lower as traders pull back from early week support. This overall lack of support in the complex continues to add volatility to the entire cattle complex, which continues to hover near short term support levels. Even though overall firm demand is expected to continue through most of the spring and early summer months, the focus on increased cattle available to the market in the last cattle on feed report continues to focus on abundant supplies that may last over the rest of the year. This has pulled prices $3 to $4 per cwt off of March highs, as traders remain cautious concerning long-term direction. Open interest in live cattle futures remains extremely high through early April with total open interest above 440,000 contracts. Cash cattle markets still remain sluggish, although a few asking prices are starting to slowly develop Wednesday morning around $127 to $128 live and $207 to $208 dressed. Bids are still unavailable, and may not be seen until later in the week. Unless a major shift is seen in futures trade or outside markets, it is likely that cash trade will be delayed until sometime Thursday or Friday. Open interest Tuesday added 2,534 positions (440,564). Spot month April contracts lost 1,325 positions (38,565) and June contracts slipped 73 positions (200,469). DTN projected slaughter for Wednesday is 119,000 head.

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FEEDER CATTLE:

Open: Steady to 50 cents lower. Limited pressure is slowly developing in feeder cattle trade early Wednesday morning. The general lack of support following sharp triple-digit losses Tuesday is adding bearish undertones to the entire cattle complex. Despite strong support in the nearby hog complex, traders seem to be less focused on overall movements in cattle trade based on overall uncertainty of cattle numbers available to feed yards over the next few months. Firm support in grain trade through the week is also adding even more pressure to the feeder cattle trade due to increased production costs. Feeder cattle prices are most directly affected by movements in grain trade due to feed yard managers adjusting purchase prices based on expected overall production costs. Cash index for 3/30 is $142.50 up $0.08. Open interest Tuesday lost 725 positions (50,537).

LEAN HOGS:

Open: Steady to $1 higher. Firm follow-through buyer support continues to move back into the lean hog complex Wednesday morning. The next round of trade talks between the U.S. and China are expected to take place over the next couple of days with Chinese officials traveling to the U.S. There are reports that the trade deal is about 90% complete, which continues to give hope to the hog complex that additional demand will develop over the next couple of months. Overall this is good news, but as in all negotiations, it seems that the final stretch of any deal seems to be the hardest to pin down. This may or may not be the case with any trade deal with China, but all markets are anticipating additional news coming out of the talks. Cash hog trade is called $1 lower to $1 higher. Most bids are expected steady to $1 lower Wednesday morning. Open interest added 217 positions (279,789). April fell 1,060 positions (21,086) and June gained 110 positions (81,772). Cash lean index for 3/30 is $76.78 up $0.98. DTN projected slaughter for Wednesday is 477,000 head. Saturday runs are expected at 145,000 head.

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

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Rick Kment