DTN Before The Bell Livestock

Lean Hogs Rocket Into Blue Sky

Elaine Kub
By  Elaine Kub , Contributing Analyst
(DTN photo by Nick Scalise)

GENERAL COMMENTS:

Futures traders have been eager buyers in the livestock sector so far Wednesday morning, led by the rallying lean hog futures exploring fresh contract highs. Big daily slaughter numbers continue to support the bullish attitude for livestock prices this week. Corn is trading 3 1/2 cents lower in moderately active trade. Stock markets are mostly higher Wednesday morning, with the Dow Jones down 3.03 points and the NASDAQ up 83.52 points.

LIVE CATTLE:

Open: 20 to 40 cents higher. The nearby February contract is up $0.10 at $116.075 and the April contract is up $0.275 at $122.80. These price levels represent a recovery from past losses but not a full recovery to the high of $123.90 from Friday on the April chart, for instance. Amid this generally bullish attitude in both the futures market on one side and the wholesale beef market on the other, the cash cattle trade should be expected to follow along eventually this week. Asking prices for Southern fed cattle have been noted at $115, which is about $2 higher than last week. Packers, however, may resist by pointing toward the unseasonably heavy dressed weights (above 915 pounds for steers and above 850 pounds for heifers) that have been noted so far this year in the large numbers of fed cattle that have been processed lately. DTN projected slaughter for Wednesday is 118,000 head. On Tuesday, total open interest added 142 positions (326,830). The February contract lost 1,417 positions (29,234) and the April contract added 388 positions (141,032).

FEEDER CATTLE:

Open: 65 cents higher. While the rest of the livestock futures sector trades higher Wednesday morning and feed grain prices remain neutral, it's unlikely that feeder calves will bolt from the herd. The nearby March contract is up $0.675 at $139.80 and the April contract is up $0.80 at $143.05. For calves being born today and destined for a fall sales timeframe, note the October futures contract up $0.975 at $154.925 Wednesday morning. While profitability is generally available for most of the cattle-feeding industry at current price levels, order buyers at country sale barns will likely bring that positive mood to their business. The CME Feeder Cattle Index for Feb. 1 was down $0.03 at $136.40. On Tuesday, total open interest added 287 positions (39,968). The March contract added 99 positions (18,904) and the April contract lost 139 positions (6,250).

LEAN HOGS:

Open: 50 cents to $1 higher. Once the April lean hog futures contract broke through last week's contract high at $77.60 on Tuesday, it became easy to attract more eager buyers. It's only been upward so far Wednesday morning amid an active volume of buying interest, and when looking out as far as the July lean hog futures contract, prices have churned as high as $89.125 (so far). Futures traders may still have a bullish appetite to see how far this rally can go. The nearby February contract is up $0.65 at $72.20 and the April contract is up $1.475 at $79.55. These futures gains are generally supported by industry fundamentals, like the hefty daily slaughter numbers and the resilient export outlook. On Tuesday, total open interest grew by 6,159 positions (227,413). The February contract liquidated 1,064 positions (16,213) and the April contract added 2,573 positions (96,196). Open interest in pork cutout futures added 80 positions (1,291). The CME Cash Lean Hog Index for Feb. 1 is $68.87, up $0.60. DTN projected slaughter for Wednesday is 496,000 head.

Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at masteringthegrainmarkets@gmail.com or on Twitter @elainekub.

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Elaine Kub