DTN Early Word Livestock Comments
Livestock Futures May Try to Regain Losses
Cattle: Higher Futures: Higher Live Equiv: $280.99 +3.22*
Hogs: Higher Futures: Higher Lean Equiv: $125.75 +0.41**
*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.
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It is interesting how cattle futures opened steady to lower and never looked back Tuesday. As futures moved lower, selling increased as recent longs sold out in case of a larger price retracement. The market is fundamentally supported, but technically it is overbought and may see a larger price retracement as the market may be getting tired, and fund traders are substantially long the market. Feeder cattle prices this week have been lower in most cases at sale barns. Buyers might have reached a threshold of what they are willing to pay. Boxed beef prices soared on Tuesday, with choice up $4.40 and select up $5.07. Early indications are that cash might be higher this week, but cattle have not yet been traded.
Hog futures moved opposite to what the fundamentals would have suggested Tuesday. Strong cash and cutouts should have provided support, but spillover pressure from cattle seems to have gained the upper hand. The National Daily Direct Afternoon report showed cash up $3.12 Tuesday, adding to the strong gain on Monday. Pork cutouts increased $0.41, moving values to $119.89. It seems the number of market-ready hogs may be tighter than reported, coupled with increasing demand. Packers have had to remain more aggressive than they would like to be and have been unable to improve their margins.
| BULL SIDE | BEAR SIDE | ||
| 1) | Boxed beef prices remain incredibly strong, indicating good demand and the need for packers to buy cattle aggressively. | 1) | Even with strong fundamental support, cattle futures have rolled over. This could trigger profit-taking and liquidation of futures positions. |
| 2) | Feedlots will hold for higher prices with initial offers posted on Tuesday indicating as much. | 2) | Feeder cattle have shown some price weakness recently as buyers may have reached a threshold. |
| 3) | Hog packers were strong buyers last week and again so far this week. Both cash and cutouts are trending higher. | 3) | Demand for pork has improved, but there may be a limit to what consumers will pay as they balance increased food prices. |
4) | Hog supplies may be tighter than reported, causing packers to be aggressive with their purchases. | 4) | Hog futures have chart gaps below the market. Chart gaps are generally closed before a contract goes off the board. |
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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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