Higher Futures Expected to Begin Week
Cattle: Steady Futures: Higher Live Equiv: $268.48 +$0.79*
Hogs: Higher Futures: Higher Lean Equiv: $108.51 +$2.56**
*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.
Cash cattle closed the week in line with where trading began earlier in the week. Northern dressed cattle averaged $3.00 higher while Southern live cattle traded $2.00 higher. This was not as high as some had hoped, but higher nevertheless. The market struggled the last half of the week despite cash trading higher. Boxed beef prices closing higher on Friday may provide support to begin the week. Choice boxed beef increased $0.50, with select up $2.59. Higher boxed beef prices will need to continue, or traders could become disillusioned, resulting in lower futures. Feeder cattle closed higher, regaining some of the losses of Thursday, but not enough to turn the trend higher. The Commitments of Traders report showed fund traders reducing their long futures position by 2,059 contracts in live cattle to a net-long of 64,966. They added 1,413 long futures positions in feeder cattle, increasing it to a net-long of 10,400 contracts.
Hog futures showed evidence of spread trading with contracts through April closing higher and later contracts closing lower. The gains and losses were not large as traders remain uncertain about the level of demand to be seen. The August contract will cease trading on Friday. The October contract carries a substantial discount to the August contract, indicating traders are not optimistic about cash moving through the rest of the year. The National Daily Direct Afternoon Hog report showed cash down $0.63. Packers may step up Monday to purchase hogs, as they were not aggressive during the last half of last week. Pork cutout values were up $2.24, moving the price back above the $100 level to $101.50. The Commitments of Traders report showed the funds as net sellers of 61 futures contracts, increasing their short position to 19,179.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Higher cash cattle trade last week may indicate the slide is over and steady to higher cash will unfold over the next weeks. |
1) |
The uptrend in cattle has been compromised and further weakness could surface that may result in futures retesting the lows. |
| 2) |
The drought and wildfires will reduce the desire for ranchers to retain heifers and expand their herds. |
2) |
Higher cash cattle prices did not trigger aggressive trader buying interest. The market will need to prove itself. |
| 3) |
Nearby hog futures bounced off support, possibly indicating traders are not willing to push prices any lower. |
3) |
Traders need to see consistent demand support for pork. So far, that has been lacking. |
| 4) |
Pork cutout values pushed back above $101 on Friday. Demand may continue to support the market. |
4) |
Packers continue to find sufficient hogs available for purchase without having to be aggressive in the cash market. |
For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CDT. 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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