Optimism May Push Futures Higher
Cattle: Higher Futures: Mixed Live Equiv: $264.05 +$0.25*
Hogs: Higher Futures: Mixed Lean Equiv: $97.62 -$1.30**
*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.
Cattle futures have been trading in a sideways pattern for about a week, but broke above range Tuesday. This may trigger further technical buying interest. Packers are in a quandary as their margins are deep in the red, but demand remains strong. They have not purchased many cattle for deferred delivery and are reducing slaughter to limit what they need to purchase in an attempt to improve boxed beef prices. However, boxed beef prices have not been responding as much as hoped to this point. Prices on Tuesday were mixed, with choice up $0.88 and select down $0.87. Cash has not traded, and bids and offers have not been established. Feedlots see no need to be aggressive sellers as they have been rewarded for heavier cattle. Cash is expected to trade higher this week.
Hog futures remain in a sideways trading pattern with traders uncertain over price direction. The fund traders are holding long positions on optimism over better demand and higher prices. The October and later contracts closed lower after the past three weeks of nearly consistent higher highs. This does not mean the uptrend is over, but the market could take a breather. The National Daily Direct Afternoon Hog report did not show a price change again, as only 170 head were traded, and there was nothing to compare it to from the previous day. Pork cutouts did not fare well, with values down $1.30.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Cattle futures broke above the recent trading range, which may provide traders with the confidence to add to their long positions. |
1) |
Reduced cattle slaughter has not consistently supported boxed beef prices. Packer margins have not improved. |
| 2) |
Packers have not purchased many cattle ahead and may need to be aggressive in the cash market to obtain a sufficient supply of cattle for slaughter. |
2) |
Cattle futures may show limited further strength until cash cattle trade develops. |
| 3) |
Hog futures continue to find support despite the variability of cash and cutouts. Traders continue to hold and add to their long positions. |
3) |
Hogs remain in the recent sideways range in nearby contracts and are unable to find underlying fundamental support to trend higher. |
|
4) |
The increased hog slaughter pace has kept hogs from backing up in the countryside. Good pork demand has been able to balance out the heavier weights. |
4) |
Packers have no difficulty purchasing the hogs they need for slaughter and do not need to bid higher to obtain them. |
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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