DTN Early Word Livestock Comments

Uncertainty Over Price Strength

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $222.54 -$1.29*

Hogs: Higher Futures: Higher Lean Equiv: $91.41 +$0.97**

*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:

There was optimism Monday over a greater potential for cash to at least hold the line with last week. This remains to be seen, but traders seemed confident the decline in cash may be near an end. After all, cattle numbers did not suddenly increase. The positive estimates for prices released on the WASDE report on Friday provided some continued support as well as the fact that futures hold a discount to cash. Cash business is not expected Tuesday as bids and offers have not yet been revealed. Boxed beef prices were mixed with choice down $2.63 and select up $0.03. Feeder cattle defied the higher corn prices Monday as demand for cattle at the auctions remains strong.

Hog futures showed surprising strength posting triple-digit gains. The Supreme Court upholding California's Prop 12 law seems to have been digested and factored into the market. However, there will be much uncertainty surrounding the implementation of this and it may face further challenges from different angles. Cash was not reported due to packer confidentially. What was surprising was that futures showed the strength they did as generally this leaves traders more cautious. Cutouts were higher with an increase of $0.97. The movement of hogs Monday was rather light, which could bring packers to the table more aggressively Tuesday.

BULL SIDE BEAR SIDE
1)

There is an expectation cash could hold steady as feedlots may be willing to hold out due to the recent strength of futures.

1)

If feedlots cannot hold the line and cash trades lower again this week, the recent gains may be erased.

2)

Traders are confident feeder cattle will remain strong with aggressive pushing of price back up near the highs. Feeders will remain in demand if grain prices continue to decline.

2)

Boxed beef prices have become more variable recently with overall prices trending lower.

3)

Better cash and cutouts may provide the support for hogs that had been lacking for quite some time. Demand may be increasing.

3)

The uncertainty surrounding Prop 12 and its implementation and impact may keep upside potential limited.

4)

Hog futures are oversold and in need of a greater price correction. Technical traders may remain aggressive Tuesday.

4)

Strong price increases have been short-lived, and this price strength may be limited. The hog market will need to prove itself.

Register today for the upcoming DTN Ag Summit Series event, "Crop Updates from the Field." We will visit with farmers from across the country, talk about the latest dicamba and pesticide news and discuss DTN's latest weather and market outlooks. The program begins Tuesday, May 23, at 8:30 a.m. CDT. We understand if you're too busy to attend live. It will be available for replay; however, you must register before the May 22 deadline to gain access. Registration is free, and you can find more details here: www.dtn.com/agsummit

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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