DTN Early Word Livestock Comments
Lower Cash Cattle Trade Expected Friday
Cattle: Lower Futures: Lower Live Equiv: $231.76 +$1.34*
Hogs: Lower Futures: Higher Lean Equiv: $106.05 +$0.56**
*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 had been slowly regaining some of the losses of two weeks ago, but the gains have not been without a fight. The gains of Wednesday were eliminated Thursday as the optimism for cash trade this week has eroded. A few cattle traded in Nebraska and Iowa at $6.00 lower than last week. This may have set the stage for significantly lower cash trade, leaving little reason for futures to move higher. Weekly export sales were good at 28,100 metric tons (mt) and a marketing-year high. Boxed beef was higher with choice up $2.06 and select up $1.53. This may not provide support as traders focus on the cash cattle trade in the country. The packers continue to run reduced slaughter schedules to leverage the cash market.
Hog futures found support but it did not come from the weekly export sales report as it was a marketing-year low at 20,900 mt. The strength was both technical and fundamental. The National Direct Afternoon Hog report showed cash up $0.88. Packers likely have their needs covered for the week with lower prices expected Friday, which may have limited influence on the market. Pork cutouts increased by $0.56 with gains in all categories except picnics. The February and April contracts closed the chart gaps and then moved higher setting the stage for further gains. Saturday slaughter is estimated at 122,000 head.
BULL SIDE | BEAR SIDE | ||
1) | Strong international demand may provide support to the market. Tighter cattle numbers and ongoing domestic and export demand should limit price weakness. | 1) | Light cash cattle trade on Thursday at $6.00 lower than last week will not provide much support to the market. It is almost certain all cattle will trade somewhat lower due to the initial weakness. |
2) | Strong boxed beef prices Thursday and for most of the week indicate consumer demand is improving after the summer slump. | 2) | Packers continue to maintain a reduced slaughter pace to improve margins. This may be backing up cattle in the country. |
3) | Hog futures closed the chart gaps and did not find technical resistance at that level but pushed higher and closed higher, setting the stage for further technical strength. | 3) | Hog futures may have limited upside price potential as fundamentals may not provide sufficient support for higher prices in the near term. |
4) | Higher cash hogs Thursday are somewhat unusual but may indicate stronger demand as the packers continue to run an increased slaughter pace. | 4) | Packers have purchased most of their needs for the week and may hold back on cash today. |
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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