DTN Early Word Livestock Comments

Mixed Ideas on Market Direction

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $190.67 -$0.68*

Hogs: Steady Futures: Mixed Lean Equiv: $110.64 +$0.44**

*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 ended the week higher with buying interest stemming from the weakness of the U.S. dollar. Most commodities found strength Friday because of the lower dollar. Cash cattle did not change from what had been established earlier in the week. Boxed beef was lower with choice down $0.75 and select down $1.31. This did not provide any direct fundamental support. However, there is anticipation packers will need to be more aggressive this week due to their lack of aggressiveness over the past few weeks. It is unlikely they have many cattle contracted ahead and will need to step up to purchase cattle to maintain a strong slaughter pace. However, corn prices are trending higher and may have an impact on the willingness of feedlots hold cattle for higher prices.

Hog futures were higher with October leading the charge with a triple-digit gain. The market might deal with some headwind Monday as packers may hold back again in the attempt to improve profitability. Slaughter pace has improved, but that has not translated into higher cash. The National Direct Afternoon Hog report showed cash down $3.70. Pork cutouts managed to find some strength with a gain of $0.43. USDA will release the World Agricultural Supply and Demand report Monday, which will show their estimates for pork production and hog prices. This is generally not a market mover for meats.

BULL SIDE BEAR SIDE
1)

Packers may need to be more aggressive this week as they have been holding back with purchases over the past few weeks.

1)

The uncertainty over cash strength this week may leave futures floundering Monday. Cash cattle are not expected to trade.

2)

Slaughter pace remains strong as consumer demand needs to be met. Feedlots may hold for higher prices.

2)

Live cattle may be developing a sideways trading pattern which may limit price potential.

3)

Hog slaughter is increasing, indicating strong consumer demand. This requires more hogs to maintain a higher chain speed.

3)

Cash hogs continue to decline, leaving limited reason for traders to narrow the spread very much between futures and cash.

4)

Futures found support near the lows Friday, resulting in short-covering and renewed buying interest. Traders may feel more confident to buy and hold.

4)

Packer margins remain low, leaving them less aggressive in the cash market. Yet, they still have been able to purchase sufficient hogs for increased slaughter.

**

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