DTN Early Word Livestock Comments

Lower Corn Overnight May Provide Support

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $194.99 +$0.99*

Hogs: Higher Futures: Higher Lean Equiv: $110.58 +$0.34**

*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:

Live cattle traders were uncertain of direction Monday, closing slightly lower in all contracts except front-month August. The final day to trade the August contract is Wednesday, leaving it trading close to cash. Traders are uncertain over the aggressiveness of packers this week. No bids were posted with packers content to see how the strength of the corn market will play out and how anxious feedlots might be to move cattle. Packers purchased some cattle ahead last week and will likely continue to do that again this week, as long as they do not need to chase the market higher. However, lighter showlists were distributed Monday, which may change that thinking. Boxed beef was higher with choice up $0.28 and select up $3.99. The Commitment of Traders report showed funds increasing their net-long position 520 contracts to a net total of 66,556 long positions.

Hogs found support Monday. Short-covering took place as traders did not want to press the market to the downside anymore. However, the gap in the October contract remains below the market and was not filled during the massive sell-off. Cash and cutouts were not the catalyst to provide support with the National Direct Afternoon Hog report showing cash down $0.90 while cutouts only managed to move $0.34 higher. Cash is expected higher Tuesday as they generally have been doing over the past weeks. The market may have over adjusted to expected reduced demand after Labor Day and may now retrace. The Commitment of Traders showed funds as net sellers of 7,150 contracts, reducing their net-long positions to 64,807 contracts.

BULL SIDE BEAR SIDE
1)

Corn weakness overnight should provide some support to feeder cattle.

1)

The trend is down in cattle and may not change anytime soon as there are sufficient cattle to satisfy the higher slaughter rates.

2)

Lower showlists may result in packers having to pay steady money if not more to obtain the desired cattle for the week, as well as to continue to purchase ahead.

2)

Higher feed prices and higher placements means cattle will be coming to the market over time, limiting the bargaining power of feedlots.

3)

Hogs should find some follow-through buying as the market retraces from being oversold.

3)

The gain in hog futures yesterday was not the result of strong cash or cutouts, but short-covering in an oversold market. This may run its course in two to three days.

4)

Lower pork prices should stimulate consumer interest as they struggle with higher food prices. This should keep product moving and the market supported.

4)

October hog futures still have a chart gap that may be closed below the market before there will be any strong technical buying 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