DTN Early Word Livestock Comments

Traders May Take Some Profits Before Weekend

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $221.16 +$1.29*

Hogs: Lower Futures: Higher Lean Equiv: $84.83 +$1.54**

*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 futures showed strong buying interest right from the start, similar to the action a week ago. Weekly export sales were not very good at 8,700 metric tons (mt), down 36% from the previous week, but that had little impact on the market early in the day. Cash cattle were expected to trade higher, and they did with live cattle in the South trading $5.00 higher and live cattle in the North trading as much as $10.00 higher. Northern dressed cattle averaged $11.00 higher than last week. Packers had no choice but to step up and pay the price as demand remains strong and the strong slaughter pace needs to be maintained. Boxed beef prices were also higher with choice up $1.94 and select up $1.57. However, futures began seeing more aggressive selling later in the morning, resulting in contracts closing lower, except for nearby April contracts.

Hog futures just could not find any aggressive buyer interest resulting in new contract lows again. Export sales were disappointing at 27,100 mt, down 49% from the previous week, along with pressure from lower cutouts Wednesday. Packers have not been aggressive and have not had to bid up to obtain hogs this week. The National Direct Afternoon Hog report showed cash down $1.28 The only bright spot Thursday was that cutout values increased $1.54. This may have some influence on trading, along with it being a Friday. Some short-covering may take place as traders may be a bit nervous over pressing the downside much further. Saturday slaughter is estimated at 172,000 head.

BULL SIDE BEAR SIDE
1)

Exceptionally strong cash is likely to spill over into next week as packers are chasing tight cattle supplies.

1)

The failure of cattle futures to maintain early strength could indicate a price correction may take place. There may be further weakness before the weekend.

2)

Continued strength of boxed beef indicates consumer demand remains strong and packers need to maintain slaughter pace.

2)

There may be a limit to how high beef prices will go. The market will find a level at which demand will be reduced as consumers limit purchases.

3)

Stronger pork cutouts Thursday and an oversold market may trigger some short-covering as the weekend approaches.

3)

Pork has not been able to find consistency of demand with cutouts continuing to flounder.

4)

The hog market is due for a price retracement as it has been under extreme pressure over the past month. The new lows could trigger buying as traders may not want to press the market much further to the downside.

4)

Funds continue to remain net short the hog market with no reason to cover those short positions.

**

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