Expected follow-up strength


Cattle: Higher Futures: Higher Direct Equivalent: $190.36 + $0.39*

Hogs: Top Futures: Lean Mixed EQ: $99.84 – $1.45**

*Based on live cattle equivalent estimation formula for total packaging revenue. (The Live Cattle Equiv. Index has been updated to depict recent changes in live cattle weights and grading ratios.)

**Based on Lean Swine Equivalent Estimation Formula for Packers’ Total Revenue.

The cattle market opened a gap as expected, but the futures contract did not move as high as expected. This is understandable as futures rose last week, after taking some of that into account. However, gains pushed the April and later live cattle contracts to new highs with the close months of December and February challenging the highs. Cash cattle did not trade, but canned beef was supportive. Choice cuts went up by $0.51 with selection going up to $0.79. Cash action may appear on Tuesday due to the short holiday weekend with expectations of stronger cash making. Feeder cattle found support not only from the Cattle on Feed report but also from pressure on corn futures on Monday. Feed cattle prices remain mixed at auctions. The Commitment of Traders report showed funds reducing their long positions by 10,475 contracts, to a net long position of 49,704.

Hog futures showed spread trading again with pressure on the first month in December. There is growing optimism about hog prices in the coming year as the July, August and September contracts hit new highs. Cash traded higher on Monday, with the National Direct afternoon report showing a gain of $0.35. This is unusual for a Monday, but the work needs to be done because of the shorter week. The breakers weren’t supportive, and it fell $1.45. Slaughter continues to stay strong with more hogs needed to fill the increased pace. The Commitment of Traders report showed funds increasing their long positions by 901 contracts, to a net long of 53,460 futures contracts.

bull side bear side
1)

The cattle contracts later made new highs, which should provide confidence to traders to buy and hold positions.

1)

Both live and feed cattle contracts have fewer gaps than the market to fill.

2)

Cattle supplies will only get tighter over time, as shown in the Cattle on Feed report. Prices should remain supported and move higher.

2)

Packaged beef continues to falter, keeping packing margins well below last year and the three-year average. Packers may reduce the frequency of slaughter next year.

3)

The increased pig slaughter continues to pull the pigs forward, causing the weights to drop. This should tighten the width over time.

3)

The hog cutters were unable to head upwards. Increased slaughter leaves ample stocks of pork available in the market.

4)

There is strong optimism about hog prices next year with summer prices in triple digits.

4)

Packers do not need to aggressively chase boars in the country. The supply of pigs is sufficient to meet the demand without any concern about supply shortages.

**

For our next Livestock Update, please visit Midday Livestock Comments between 11am and 12pm CST. Also, stay tuned to Quick Takes throughout the day to get periodic updates on the futures markets.

Robin Schmahl can be reached at rschmahl@agdairy.com

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