DTN Early Word Livestock Comments
Traders Uncertain Over Cash
Cattle: Lower Futures: Mixed Live Equiv: $234.90 +$0.12*
Hogs: Higher Futures: Mixed Lean Equiv: $104.20 -$0.55**
*Based on the formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. The 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 are uncertain about the potential of the market this week. Lower cash last week was indicative of the market showing weakness in demand. Boxed beef prices have been under pressure for the past two weeks. Boxed beef prices were mixed Monday with choice down $0.58 and select up $2.51. Packers were able to purchase 25% of the cattle last week for deferred delivery, which puts them in a position to hold for lower prices this week. Feelots needed to move cattle last week and likely again this week, reducing their desire to hold for higher prices. The benefit for feedlots is the continued weakness of feed prices. It is too early in the week for traders to position themselves for the Cattle on Feed report to be released Friday, but it is in the back of traders' minds.
Hog futures tried to extend gains but ran out of aggressive buying interest as the day progressed. The August contract is not the lead month as July went off the board Monday. The positive aspect was the National Direct Afternoon Hog report showed cash up by $0.08 after being lower on the morning report. The pattern has been that packers are more aggressive on Tuesdays and today may be no exception. It is uncertain whether the market may be building support at these levels. Hog slaughter is strong, leaving the supply of hogs current but at higher weights than a year ago. Pork cutouts declined $0.55 after seeing a strong gain on Friday.
BULL SIDE | BEAR SIDE | ||
1) | August and October live cattle contracts remain in an uptrend as traders anticipated the recent weakness of boxed beef may be short-lived. | 1) | Cash cattle are expected to trade steady to lower this week. The packers were able to purchase some cattle ahead, providing them with added leverage. |
2) | McDonald's corporation is discontinuing their McPlant burgers due to a lack of demand at the restaurants. This shows that consumers prefer real beef. | 2) | Cattle weights are heavier than a year ago which requires fewer animals to produce the same volume of beef leaving packers less aggressive. |
3) | Hog futures may be building support with almost everything bearish having been through at the market. According to the Commitment of Traders report, funds reduced some of their short positions. | 3) | Pork cutouts remained volatile, changing on a daily basis without establishing a definte trend. |
4) | Hog futures remain substantially oversold and have been that way for a while. The market will retrace at some point. | 4) | Packers continue to have plenty of hogs available for purchase, leaving them less aggressive in the cash market. |
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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