Cattle futures extended their gains Tuesday, aided by continued short-covering, lower grain prices, and a jump of cash cattle prices. It is unlikely this strength may continue Wednesday, but it has changed the posture of the market. Hogs may find some stability due to the large jump of cash Tuesday and a possible end to the liquidation phase.
Cattle: Steady Futures: Higher Live Equiv: $240.80 -1.63*
Hogs: Steady Futures: Higher Lean Equiv: $129.23 -6.17**
* 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
The market can be full of surprises and the price action so far this week for cattle certainly is a surprise. Not so much in the fact that cash cattle did not trade lower, but that they actually traded as much as $4.00 higher in the North and up to $2.00 higher in the South.
Packers have enjoyed very good profit margins for some time and even through boxed beef prices seem to have established a top, they need cattle and paying more to get them still leaves exceptional profits. Paying up as much as they have does not seem to indicate that they are raising bids because they are being nice, but it seems to be more of a necessity to procure needed supply.
A decrease in weights and the possibility that demand may remain stronger than usual during this time of year is a positive development. Boxed beef price took a large hit Tuesday with choice cuts down $1.04 and select cuts down $5.13. This may actually spur greater demand as less expensive beef may increase consumer interest.