DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $204.37 +2.07*

Hogs: Lower Futures: Lower Lean Equiv: $119.91 +3.28**

* 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

GENERAL COMMENTS:

It was an ugly day in the livestock complex. Cattle futures continued to decline even though cash traded higher and boxed beef showed strong prices. The focus was on continued futures weakness as liquidation is still not finished. High grain prices, cash not increasing as much as most had anticipated, and somewhat dismal export sales kept pressure on futures. The bright spot was that cash did trade higher and boxed beef was significantly higher. However, that paled in comparison to the negatives. Fund liquidation has defied the usual three-day decline, especially in the face of increasing cash prices. However, exports have been struggling the past few weeks, indicating that beef prices have become too high for the international appetite. Export sales totaled 15,700 metric tons, down 14% from the previous week and down 23% from the four-week average. Not good. U.S. consumers have not backed away due to stimulus money and other benefits, which is keeping boxed beef prices strong. Increasing grain prices and plummeting futures triggered cash sales Thursday $0.50 to $1.00 higher. This was good, but disappointing to the trade. It may be difficult to see higher futures Friday, but some stability could be seen.

The exuberance of the hog market might have run its course for the time being. The job of the market is to reduce demand as supplies tighten. Prices may have reached that point. Export sales were dismal at 17,200 metric tons and a marketing-year low. This was down 48% from the previous week and down 60% from the four-week average. China was not even listed among the top five buyers. April futures went off the board Friday, leaving May as the font-month contract. May through August contracts were locked limit-down through the close Thursday with a significant pool of trades that could not be executed due to the limit move. Futures will have expanded limits Friday, but likely will not use them. There will be some follow through as contracts that could trade Thursday will be traded Friday at the opening. Higher cash and significantly higher cutouts should provide some support, which could kick in after liquidation has run its course. Saturday slaughter is estimated at 77,000 head.

	BULL SIDE		BEAR SIDE
1)	Cash cattle traded higher, indicating packers needed cattle and were willing to pay more.	1)	Cattle futures have made lower highs and lower lows for five consecutive sessions. It may take a monumental effort to turn the market back up.
2)	Boxed beef indicates demand remains strong and has not reached domestic consumer price resistance.	2)	Lower exports will mean more beef being available for domestic consumption. More supply means prices do not need to be as high.
3)	Cash hogs were higher with pork cutouts very strong. This may limit futures weakness.	3)	Chart price gaps remain below the market in the May and June hog contracts, beckoning to be filled.
4)	Traders may buy the break as the outlook for tightening supplies remains intact. The break may be short-lived and just an overreaction to slower export sales.	4)	Marketing-year low export sales sent shock waves through the market that traders will need to digest, leaving them less apt to buy back in until the dust settles.

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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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