Cattle Futures May See Further Weakness
Cattle futures showed weakness from the news of cases of the New World screwworm closer to the U.S. and the potential for lower cash cattle trade this week. Hog futures struggled for a while, but finally found footing to post gains for the day.
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Cattle: Lower Futures: Lower Live Equiv: $290.75 +$0.98*
Hogs: Steady Futures: Higher Lean Equiv: $107.23 +$0.84**
*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:
Live cattle futures did not spend any time in positive territory on Tuesday amid news of the New World screwworm. It was discovered about 25 miles from the border, resulting in renewed concerns about its potential to move into the U.S. The news put traders on edge, and liquidation took place to limit exposure in the market. There is the potential for cash cattle to trade lower this week, adding to the uncertainty. Fund traders hold a significantly long futures position, and there may be further interest in reducing those positions as uncertainty increases. Boxed beef prices were higher, with choice up $1.24 and select up $1.72. Feeder cattle futures opened lower and never looked back. Feeder cattle sales have shown weakness as buyers take a wait-and-see attitude for a little while.
Hogs spent some time in negative territory on Tuesday, making new lows, but finally uncovered buying interest as the selling pressure ran its course. Contracts closed at or near the highs, setting the stage for follow-through strength today. The oversold condition of the market may have influenced the rebound. The National Daily Direct Afternoon Hog report was up $1.71. Pork cutout values increased by $0.84. The higher slaughter pace continues, and packers need to increase purchases this week compared to last week. Packers may reduce their aggressiveness today to see whether they can purchase a sufficient supply and steady to lower cash.
| BULL SIDE | BEAR SIDE | ||
| 1) | The report of the New World screwworm being found within a mile of the border was false. This may provide some support to cattle futures. | 1) | Cattle futures are in a downtrend with lower highs for the past four consecutive days. The uncertainty may maintain this downtrend. |
| 2) | Higher boxed beef prices indicate demand remains good. Beef prices will fluctuate, but strong demand will provide support. | 2) | Cash cattle are expected to trade no better than steady this week, with further weakness possible. |
| 3) | The rebound of hog futures on Tuesday after making new lows indicates the selling pressure may have run its course. The oversold market may find further short covering today. | 3) | The rebound in hogs on Tuesday may have been technical and may not have long-term support. |
| 4) | Pork demand seems to be improving, with packers maintaining a higher slaughter pace. Consumers may increase pork consumption due to high beef prices. | 4) | The supply of market-ready hogs does not seem to diminish. Packers continue to have a sufficient supply to maintain the higher slaughter pace. |
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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