DTN Early Word Livestock Comments

Mixed Trade Ahead of Cattle on Feed Report

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $139.39 -$2.48*

Hogs: Steady Futures: Higher Lean Equiv: $70.00 -$0.46**

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

General Comments:

Cattle futures just could not get anything positive going Thursday, keeping the market in a steady to lower trend. Little positive news is floating around in the complex. Not only is cash lower for the week, but boxed beef continues to fall. Farmers will be glad to shut the door this week, hoping packers might again be short-bought next week and start bidding higher. The inability of cash to trade higher leaves futures floundering. Plentiful cattle supplies leave packers comfortable, finding it unnecessary to bid higher. Futures may be choppy Friday as traders look ahead to the Cattle on Feed report at 2 p.m. CDT. The average estimate is for placements at 96.1%, marketings at just 73.0% and the on-feed number at 98.7%.

Hogs closed higher Thursday for the second consecutive day after setting new contract lows. However, the trend has not changed. A short-term low may have been established with further strength Friday. Average weights have declined five consecutive weeks as producers may be more current with supplies. However, weights generally decline to varying degrees during this time of year, so it may be a false impression of current supply. Pork prices in China continue to escalate, which could increase demand for U.S. pork. Cutouts were down Thursday, which could be a drag on the market.

BULL SIDE BEAR SIDE
1)

Cash cattle will be lower than the previous week, but the fact that early steep losses were trimmed as packers raised bids at midweek could point to stronger demand.

1)

The overall trend of cattle is sideways to lower. The market is trying to move supply in balance with demand as it searches for a price that will increase retail movement. Unfortunately, price still has not found that level.

2)

The Cattle on Feed report could turn the trend higher if placements are below estimates and marketings are above estimates. Next week's price direction will be set based on where actual numbers fall compared to estimates.

2)

Traders have little interest in buying into futures due to the backlog of cattle ready to come to the market. Traders seem to be comfortable with no concern over supply.

3)

Two consecutive days of higher closes could signal that a key price reversal might have been established.

3)

China's pork prices continue to increase with the potential for more U.S. exports to fill demand. However, this has not had an impact on the market so far due to plentiful supply.

4)

Some of the backlog of hog supplies are being cleaned up, which would bring supplies more current and weights back in line with the usual. Retail movement is giving signs of better demand.

4)

Even though a key reversal was made earlier in the week, the upside price potential is limited until supply moves more in line with demand.

Robin Schmahl can be reached at rschmahl@agdairy.com

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Robin Schmahl