DTN Early Word Livestock Comments

Traders Remain Optimistic for Steady to Higher Cash Thursday

Robin Schmahl
By  Robin Schmahl , DTN Contributing Analyst

Cattle: Steady Futures: Mixed Live Equiv: $230.42 -$1.03*

Hogs: Lower Futures: Mixed Lean Equiv: $105.49 -$1.02**

*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:

Cattle futures increased as traders felt more confident over the potential for steady and even higher cash trade. The strength of boxed beef fueled that idea, but that optimism may be trimmed a bit due to boxed beef prices slipping lower on Wednesday. Choice cuts declined $2.05 with select down $0.11. That may not be enough to indicate lower cash but it may indicate there could be a limit to upside potential. Some support to the market might have come from the positive Consumer Price Index (CPI) at 2.9% compared to last year with the core CPI at 3.2% as expected. This provided a better chance Feds will cut interest rates next month. Feeder cattle remain in strong demand with active buying interest at higher prices at auctions.

The August hog contract went off the board Wednesday and traders did not wait to narrow the price gap the October holds. The February and April contracts tried to close the chart gaps but could not accomplish the task. Cash was higher with the National Direct Afternoon Hog report showing a gain of $1.26 but that strength may be offset by the decline in cutouts of $1.02. The packers are not expected to be as aggressive Thursday, which could result in lower hog prices. The slaughter pace remains strong, keeping hogs current. The weekly export sales report needs to show continued strong international demand. Saturday slaughter is estimated at 122,000 head.

BULL SIDE BEAR SIDE
1)

Traders feel more confident cash cattle may trade no worse than steady this week, which would support higher futures prices.

1)

Packers may be able to hold out for lower cash as they have cattle already purchased ahead and may not need to be as aggressive this week. The weakness of boxed beef on Wednesday may increase their concern over demand.

2)

An interest rate decline in September could improve the economy and support strong beef demand.

2)

Packers continue to hold the line on the slaughter, attempting to improve margins and back up cattle in the country. Feedlots will need to move those cattle.

3)

Hog weights declined last week to an average of 281.0 pounds, a decline of 0.6 pounds from the previous week. Weights have been declining steadily over recent weeks.

3)

Hog weights remain 4.4 pounds above a year ago, leaving a plentiful supply of pork available to packers.

4)

The February and April hog contracts have chart gaps above the market. Futures came close on Wednesday but could not accomplish the task.

4)

The recent trend remains down even with the strong futures gains on Wednesday. Traders will be cautious over the upside price potential.

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