DTN Early Word Livestock Comments

Higher Corn Futures May Pressure Cattle

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Higher Futures: Higher Live Equiv: $194.68 +$0.21*

Hogs: Lower Futures: Mixed Lean Equiv: $125.64 +$0.46**

*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 were lower as expected yesterday but held well despite the bearish Cattle on Feed report. The complex might struggle this week as a result of the report and the expectation that packers may not be as aggressive. Feedlots may still be in the driver's seat as show lists are smaller leaving packers with fewer to choose from. Corn futures were higher overnight due to a 3% decrease in crop condition and the first leg of the Pro Farmer crop tour showing variable yields and crop stress. This is expected to put pressure on feeder cattle which will keep pressure on live cattle as well. Boxed beef was slightly higher with choice up $0.24 and select up $0.42. The Commitment of Traders report showed funds as net buyers of 16,964 contracts bringing their net long total to 66,036.

Hogs may have run its liquidation course. However, it will be difficult for futures to regain the losses suffered. For one, neither October nor December closed the chart gap. December came within 12 points of filling the gap before rebounding. This leaves gaps remaining as technical trade targets. The surprise yesterday was the strength of cash with the National Direct Afternoon Hog report showing a gain of $8.55. There should be some follow through today as packers need hogs to fill increased chain speed. Cutouts were moderately higher with a gain of $0.46. The Commitment of Traders report showed funds were net buyers of 6,804 contracts bringing their net long positions to 71,957 contracts.

BULL SIDE BEAR SIDE
1) Cattle were able to hold well after the bearish Cattle on Feed report. Strong demand is expected to continue. 1) The bearish Cattle of Feed report will be a cloud hanging over the market for a period. Higher placements will mean more cattle will be available down the road.
2) Show lists are lighter this week which may cause packers to bid more aggressively to obtain the required number to fill the higher slaughter pace. 2) The end of the summer grilling season is near and with it may go some of the strong demand we have been seeing.
3) Hogs seem to have run their liquidation course and may find support at the current level. 3) October and December hog futures still have chart gaps remaining below the market. December came within 12 points of closing the gap yesterday. Futures may drop back to close the gaps.
4) Very strong cash yesterday showed packers are buying early and aggressively as slaughter pace increases. 4) Pork in cold storage for July was 20% above a year ago with belly stocks 53% higher. Sufficient pork is available to demand.

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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