DTN Early Word Livestock Comments

Traders to Focus on Cash

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $194.86 -0.99*

Hogs: Higher Futures: Higher Lean Equiv: $131.93 -$0.21**

*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:

True to form, boxed beef prices saw their day of strength Monday and then declined Tuesday with choice down $1.51 and select down $1.16. This may be it for much of the rest of the week if it follows a similar recent pattern. Higher corn prices and weaker boxed beef may be used by packers to limit what they will pay for cattle this week. Even if they do pay higher cash, it may be limited. The strategy may be to pay $1.00 to $2.00 more, as they did last week, in order to continue to purchase cattle ahead and limit having to pay up substantially in any given week. However, that strategy may only buy some time and eventually tighter supply will need to be reckoned with. Hot weather has subsided in many areas which will improve cattle performance.

August hogs continued the uptrend and posted a new contract high close Tuesday. October closed lower after an impressive rally Monday. However, it is likely strong cash Tuesday will be responded to with higher futures Wednesday. The market rejected the lows Tuesday as support remains under the market. The National Direct Afternoon Hog report showed cash up $8.29. Cash is expected higher again Wednesday if the pattern remains intact. Cutouts were lower, providing some cause for concern, but the loss was limited to $0.21. Slaughter pace seems to be picking up with hog weights right in line with a year ago.

BULL SIDE BEAR SIDE
1)

Cash cattle will likely trade Wednesday with some expectation packers will need to pay at least $1.00 to $2.00 more this week.

1)

Stronger corn prices overnight might keep pressure on feeder cattle again Wednesday.

2)

Even with the weakness Tuesday, the uptrend remains intact for cattle futures.

2)

Lower boxed beef prices may keep packers less willing to be aggressive in the cash market.

3)

The resiliency of hog futures is a testament to continued strong demand. Cutouts continue to advance on an overall basis.

3)

October hogs continue to hold a large discount to the soon expiring August contract. Traders anticipate weakness.

4)

Hog futures should see buying develop in response to strong cash Tuesday.

4)

October hog futures were not able to hold new contract highs Tuesday, which may result in a double-top formation increasing trader selling interest.

**

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