Further Strength Expected in Futures

Cattle: Steady Futures: Mixed Live Equiv: $232.11 -$0.52*

Hogs: Higher Futures: Higher Lean Equiv: $103.16 +$2.63**

*Based on formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. 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.

Feeder cattle futures pushed easily to new contract highs in September and later contracts. August will cease trading on Thursday as the contract goes off the board. There will likely be follow-through buying as new contract highs might bring in further technical buying interest. With continued strong interest in the country for feeder cattle and higher prices at auctions, traders were confident higher prices were necessary Monday. Live cattle were moderately higher, pulled along by the strength of feeders but remaining cautious over the strength of cash this week. Boxed beef prices slipped Monday with choice down $0.86 and select down $0.58. Packers will purchase cattle this week, but not aggressively due to the Labor Day holiday next week. FSA announced it is updating the Livestock Indemnity Program (LIP)payment rate to producers that have lost cattle during the extreme heat this summer. The payment rate for beef calves over 800 pounds will increase from $1,244 per head to $1,618 per head.

Hog futures overcame the bearishness of cash and cutouts on Friday to move to triple-digit gains Monday. Contracts bounced from technical support, nearly eliminating the losses of last week. October outpaced the rest of the complex as traders saw packers paying higher prices to begin the week. The National Direct Afternoon Hog report showed cash increasing $2.30. Packers want to purchase early this week and should be aggressive Tuesday as well. Cutouts took back some of Friday’s large loss, posting a gain of $2.63.


Feeder cattle made new contract highs, increasing the interest of technical traders. This should result in further follow-through buying.


Cash cattle showed weakness the past few weeks with the anticipation cash will be no better than steady this week. Feedlots may move cattle they have been holding the past few weeks.


Deferred live cattle contracts are seeing more strength as cattle numbers are expected to remain tight through much of next year.


Live cattle remain in a range it may be difficult to move above unless packers increase slaughter pace, which is unlikely anytime soon.


Packers needed hogs and are willing to purchase early in the week, which should provide higher prices again Tuesday.


The rebound of hog futures seemed to be technical in nature rather than fundamental as contracts bounced from support. Further strength may be difficult to achieve due to price uncertainty.


Higher cutout values are expected again Tuesday as the large decline on Friday likely should have never happened. Slaughter remains strong as packers need to satisfy demand.


Packers have sufficient hogs to fill slaughter needs and meet demand. This may limit their aggressiveness in the cash market.


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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