DTN Before The Bell-Livestock

Hog Futures Firm Midweek on Strong Demand Expectations

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

Firm buyer support is slowly but steadily moving back into lean hog trade as traders back away from initial week softness as traders become less shocked with new tariff levels and start to settle in for what could be a long drawn-out trade process with China. Cattle markets remain mixed with underlying pressure in feeder cattle focusing on increased production costs following grain market support. Corn markets are higher in light early trade. Stock markets are lower. Dow Jones is 157 points lower with Nasdaq down 47 points.

LIVE CATTLE:

Open: Mixed. Limited activity is seen Wednesday morning with traders expecting a generally quiet market session with limited new market direction or news for traders to grab ahold of. Prices are currently hovering in a very narrow trading range from 10 cents lower to 20 cents higher with the focus on outside markets and potential movement in cash markets. The complex still remains extremely oversold, but given the strong support of grain prices and the impact these will have on increasing production costs, traders are unwilling to re-own market positions at this point. Overall open interest has stabilized and is starting to slowly improve through the week, indicating that most liquidation may be over. Until prices start to show moderate support and stability, active interest is going to be hard to find. Cash cattle interest remains sluggish with bids undeveloped early Wednesday morning. Asking prices are starting to become more available with cattle priced at $120 and higher live and $196 and higher dressed. Some trade may trickle into the market before the end of the day, although most activity is expected to be pushed off until Thursday or Friday, but depending on outside and future markets moves. Open interest Tuesday added 2,951 positions (380,300). Spot month June contracts lost 2,691 positions (90,273) and August contracts added 3,898 positions (134,933). DTN projected slaughter for Wednesday is 122,000 head.

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FEEDER CATTLE:

Open: Mixed. Initial buyer support attempted to cover short positions early Wednesday morning, but the overall softness in the complex limited the ability to sustain firmer price levels. Limited trade volume is seen through feeder cattle trade with the underlying weak tone still holding in the complex as renewed buying in grain trade has added to the overall bearishness of the complex. Limited open interest gain over the last few days indicates that traders seem to be slowly moving back to the complex at current price levels, but for now, most traders are waiting on the sidelines until a clear indication of market support can develop. Given current market prices and the tone of the market, there is limited downside market risk, but the concern that prices may remain stuck in this weaker pattern is causing many traders to keep their distance from the entire cattle complex. Cash index for 5/13 is $135.07 down $0.32. Open interest Tuesday added 84 positions (50,142).

LEAN HOGS:

Open: 50 cents to $1 higher. Moderate follow-through buyer support is steadily seen early Wednesday morning with trades focusing on increased overall support for pork product as the long-term focus on needing to feed domestic and global supplies continues to be a bearish undertone in the market. Very little news is likely to be seen over the next couple of days as traders still have no long-term indication of what tariff levels will actually due to pork exports to China. The fact that China needs protein sources, and will desire to use pork to replace lost production if at all financially possible for consumers, will spark additional demand. Even if pork does not go from the U.S. directly to China, the buying power of China on a global market will create a vacuum that could open the door for other countries to import U.S. pork supplies. Shuffling of product may continue over the next year or longer, which is helping to support the underlying tone of the hog complex during early May. Cash hog trade is called $1 lower to $1 higher with most bids steady. Open interest added 2,463 positions (306,799). June liquidated 3,430 positions (41,452) and July gained 3,157 positions (67,693). Cash lean index for 5/13 is $83.27 up $0.23. DTN projected slaughter for Wednesday is 465,000 head. Saturday runs are expected at 74,000 head

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

(BAS)

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Rick Kment