DTN Early Word Livestock Comments

Railroad Shutdown Concerns Dominate Markets

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $190.98 -$1.46*

Hogs: Higher Futures: Higher Lean Equiv: $112.54 -$0.94**

*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:

Traders did not wait for cash to trade before setting some price direction. The concern over the economy with the Consumer Price Index released Tuesday at 8.3% with the food component of the CPI increasing 11.4% and the fastest rate of increase since April 1979, put pressure on cattle. On top of that is the possible railway shutdown on Friday which could increase food prices substantially and hinder feed movement to feedlots. Feed prices could increase significantly for what is available. Even if the strike is averted, some steps have already been taken to wind down shipments of certain items, which would require a period of time to get that up and running again due to the complex scheduling system. Feedlots may need to move cattle more aggressively in the near term. Packers have floated some lower bids so far, indicating their unwillingness to be aggressive with demand uncertainty. Boxed beef declined with choice down $2.28 and select down $2.18.

Hogs flourished Tuesday as packers became more aggressive with their purchases. The National Direct Afternoon Hog report showed cash up $9.98. Although gains may not continue the rest of the week, it may change the perspective of the market. The rate of inflation did not impact the market as might have been expected. Cutouts did not perform as well with a loss of $0.94. The market may be hard pressed to show another strong cash gain but some improvement in packer margins is positive.

BULL SIDE BEAR SIDE
1)

The lower packer bids for cattle Tuesday were passed over with offers by feedlots remaining firm at steady to $1.00 higher than last week in the South.

1)

The Consumer Price Index released at 8.3% was not a good sign for consumers as food prices continue to increase. This may reduce demand for certain cuts of beef.

2)

Slaughter pace remains strong, exceeding the levels of a week ago and a year ago.

2)

The railroad situation could result in more cattle needing to come to the market in the near term as feed supply could be reduced and feed prices increase.

3)

The large increase of cash hogs Tuesday may indicate packers have been holding back too long and now needed to step up to purchase hogs to maintain slaughter pace.

3)

The large increase of cash hogs Tuesday may have been a one-day wonder. It is doubtful the strength will continue.

4)

The strong close of hog futures should result in some follow-through buying Wednesday as short-covering may continue.

4)

Upside price potential may be limited unless we see cutouts begin to trend higher.

**

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