DTN Early Word Livestock Comments

Heavy Selling May Have Run Its Course

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Lower Futures: Mixed Live Equiv: $232.01 +$2.67*

Hogs: Higher Futures: Higher Lean Equiv: $110.48 -0.03**

*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:

The weakness of the outside markets continued to have an impact on the cattle complex. The huge decline has been similar to what took place in March. If a similar pattern is followed, further downside can be seen. However, any support in the outside markets may provide support to cattle futures. Similar to what happened Friday, futures rebounded significantly from their lows, but that may not mean the selling pressure will subside. Some support may stem from strong boxed beef prices with choice gaining $4.17 and select gaining $2.89. It has been some time since we have seen boxed beef strength of this magnitude in both categories. The severe decline of futures over the past three days does set the stage for potentially lower cash cattle this week. Added to that is the fact that packers purchased cattle for deferred delivery last week. Bids or offers have not been posted and may not be seen today.

Hogs reacted to the pressure from other markets on the open gapping substantially lower and then regaining much of the loss. The August contract showed the most loss with about a week remaining for the contract. Much of the adjustment is due to the following of cash and the index rather than just outside influence. Later contracts closed mixed with chart gaps remaining in the October and December contracts. Cash plummeted Monday with the National Direct Afternoon Hog report posting a decline of $7.16. This was skewed due to the limited amount of business that took place, but it did have some influence. Cutouts were lower with a minor loss of $0.03. Hog slaughter was low with only an estimated 411,000 head posted likely due to some packing plants having problems that reduced slaughter.

BULL SIDE BEAR SIDE
1)

If pressure from the outside markets subsides, cattle futures likely will regain some of the losses.

1)

If cattle futures follow a similar pattern as March, there is further downside price potential as funds trim the long market positions.

2)

Fund liquidation usually runs its course in three days. This may not generate aggressive buying interest in cattle but may stabilize the market.

2)

Feeder cattle futures closed at their lowest level since mid-December. Futures are nearing their contract lows and a break below that level would open the door for further downside.

3)

Hog futures have been somewhat immune to the selling pressure on many other commodities, indicating the current supportive fundamentals.

3)

Hog futures may be establishing a sideways market with limited upside price potential for the time being.

4)

The packers are expected to be more aggressive Tuesday as they need to procure supplies for the week. The lower cash and lower slaughter were due to slaughter plant problems.

4)

Later hog futures contracts hold a substantial discount to the current market, indicating traders are bearish prices through the end of the year.

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