DTN Early Word Livestock Comments

Livestock May See Further Pressure

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $197.27 -$0.18*

Hogs: Lower Futures: Mixed Lean Equiv: $136.91 +$2.00**

*Based on formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. Index has been updated to depict recent changes in live cattle weights and grading percentages.)

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

GENERAL COMMENTS:

Cattle are having a difficult time overcoming the seasonal slump with packers taking advantage of the need of some to move cattle due to drought and the lack of feed or due to high-priced feed. Northern cattle traded $2.00 lower while Southern cattle traded $1.00 lower. Packers have been able to purchase cattle for immediate needs as well as deferred delivery. That will not last indefinitely as supply will eventually tighten. However, fears over a recession and its impacts weigh on the market as the U.S. economy shrank for the second consecutive quarter as the GDP fell at a 0.9% annual rate for the second quarter. Boxed beef prices showed weakness with choice down $0.22 and select down $1.00. Weekly exports sales were good at 25,300 metric tons (mt), up 6% from the previous week.

Hog traders were in a quandary Thursday, seeing strength in cutouts but also a huge decline in cash. Cutouts closed $2.00 higher, supporting the August contract, while the weakness of cash took futures off their highs, moving October and later contracts into the red by the close. The National Direct Afternoon Hog report showed cash down $10.86. Weekly export sales were good at 21,600 mt, up 5% from last week. China continues to purchase on a weekly basis, shown in the list of buyers. Saturday slaughter is estimated at 21,000 head.

BULL SIDE BEAR SIDE
1)

Reduced cattle numbers point to tighter supplies over time. This should provide support to the market.

1)

Higher feed prices and lower demand continue to impact cash prices. Packers have not had to be aggressive and can still purchase the cattle they need.

2)

Technically, cattle futures are still in an uptrend even though they have faced some recent headwinds.

2)

Cattle futures may be under some pressure again Friday as further strength unfolds in the grain markets.

3)

Pork cutouts continue to advance, indicating strong consumer demand. Pork may be the red meat of choice due to its value during this period of inflation and high food prices.

3)

Traders may sell into the hog market Friday in response to the large decline of cash Thursday.

4)

Front-month August moved to the highest level since April and may challenge the contract high before it ends trading in about two weeks if current support holds.

4)

The market anticipates a large decline of prices by the time October rolls around. A possible recession could impact demand further.

**

For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CST. Also, stay tuned to our Quick Takes throughout the day for periodic updates on the futures markets.

Robin Schmahl can be reached at rschmahl@agdairy.com

Robin Schmahl