DTN Early Word Livestock Comments
Futures May Take a Breather Monday
Cattle: Higher Futures: Mixed Live Equiv: $227.35 +$2.69*
Hogs: Lower Futures: Lower Lean Equiv: $91.81 -$0.95**
*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.
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The week following Memorial Day was filled with very bullish trade activity. The large jump in cash Thursday pushed cattle futures higher, making the market technically frightening. Underlying fundamentals would not suggest a large retracement anytime soon. However, a large price movement and the current high price levels have moved June near the price level where April cattle left off. The market is trying to find a level at which demand will slow but has been unable to do so. Boxed beef was higher with choice up $3.49 and select up $4.61. Beef is in demand and packers are looking for cattle, which could carry over this week. Weekly export sales were neutral at 18,100 metric tons (mt). Feeder cattle put in a strong week with new contract highs each day. Fund traders added 4,286 long futures positions to their portfolio, according to the Commitment of Traders report, bringing their net-long futures in live cattle to 105,326 contracts. Funds added 475 long feeder cattle positions to bring their net-long futures positions to 16,462 contracts.
Hogs had an impressive week with June futures gaining $10.65 as the market corrected from being oversold as well as followed cash higher. Demand over Memorial Day was strong, requiring packers to step up to procure the needed hogs to replenish pork supplies. The uncertainty over Prop 12 seemed to have been forgotten for the week. However, the action Friday may cap the rally. The National Direct Afternoon report showed cash down $4.82 with cutouts down $0.96. Weekly export sales were not supportive with 22,600 mt sold, which was down 23% from the previous week. The Commitment of Traders report showed funds added 7,282 short futures positions over the week ended May 30, bringing their net-short position to 35,422 contracts and a record short position.
| BULL SIDE | BEAR SIDE | ||
| 1) | New contract highs in cattle continue to unfold with traders buying into the market as the "trend is your friend". | 1) | Cattle futures are in uncharted territory with the large increase on Thursday a sight to behold. Historically, large moves as such do not hold very long. |
| 2) | Packers being short bought and needing to replenish beef supplies resulted in very aggressive activity last week. The Packers will look for more this week. | 2) | The large increase in cash last week may increase the interest of feedlots to sell more cattle this week at the current price rather than hold for further gains. These are good prices. |
| 3) | Strong cash and cutouts propelled the hog market higher as holiday pork demand was strong and supplies had to be replenished. | 3) | Both cash and cutouts were lower Friday which may result in selling pressure on futures Monday. |
| 4) | The market was oversold and needed to correct with strong cash providing the catalyst. | 4) | Hog futures contracts hold chart gaps below the current price that may be filled sooner rather than later. |
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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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