DTN Early Word Livestock Comments

Cash Uncertainty May Keep Pressure on Cattle

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Lower Live Equiv: $225.65 -$0.59*

Hogs: Steady Futures: Mixed Lean Equiv: $83.84 -$2.12**

*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:

Trading in the cattle complex Thursday will be driven by cash cattle trade steady to $1.00 lower in Texas and Kansas. There was no trade in the North, leaving that open to speculation. Wednesday's cash activity may set the stage for the rest of the week. Lower cash should not be a big deal due to the large increase in cash last week. However, trader perception will drive the futures market. Boxed beef prices were lower in both categories, which we have not seen for a while. Choice declined $1.14 with select down $0.15. Cattle futures may be in for a further price correction if cash trades no better than steady and further weakness is seen in boxed beef. The Cattle on Feed report will be released Friday. On feed numbers on April 1 are estimated at 94.8%. Placements during the month of March at 95.2%. Marketed in March is estimated at 98.9%.

Hog futures closed higher, except for May, which declined $0.05. Futures settled back about $1.00 from their highs as price strength continues to be sold. The positive aspect was that futures rejected new contract lows as traders seemed unwilling to press the downside. Cash continues to struggle with the National Direct Afternoon Hog report showing a decline of $0.31. Packers have not seen the need to bid up for hogs. There was some confusion over cutouts Wednesday with the initial print being revised later, resulting in cutout values down $2.12 due to bellies being down $9.19 and ribs down $4.83. Weekly export sales need to be strong to find some level of support, but recent strong sales have had little impact on the market. Saturday slaughter is estimated at 50,000 head.

BULL SIDE BEAR SIDE
1)

Tighter cattle supply has not changed and will not change for a time. Beef demand remains strong.

1)

Weakness of both categories of boxed beef Wednesday could indicate demand may begin to slow due to high prices.

2)

Steady to lower cash cattle this week should not have much impact on the market due to the strong gains last week.

2)

Some liquidation may take place ahead of the Cattle on Feed report as traders may want to reduce some of their exposure.

3)

Hog futures rejected new contract lows, which may establish a stronger level of technical support.

3)

Hog traders continue to sell price strength as underlying fundamentals have been unable to show consistent support.

4)

Hog futures remain very oversold, which could result in a larger price correction despite struggling fundamentals.

4)

Hog futures are oversold, but funds remain confident holding their short positions. They see no reason to liquidate and have been adding to their 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

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Robin Schmahl