DTN Early Word Livestock Comments

Cattle: Lower Futures: Higher Live Equiv: $209.86 +1.18*

Hogs: Steady Futures: Higher Lean Equiv: $115.88 -2.64**

* 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:

There was enough support stemming from the Cattle on Feed report in order to interest traders in stepping back into the market on the long side. However, buying interest may be tentative, with traders quick to change their minds at the drop of a hat. Cattle futures have fallen substantially more than cash and boxed beef prices would suggest. Some of the pressure has come from continued escalating grain prices. Higher feed prices may result in cattle moving quickly to the market as feedlots will be anxious to move cattle rather than hold on to them for a bit longer in anticipation of steady-to-higher cash. Now is where the rubber meets the road as pencils are pushed in order to maintain some profit. Packers are looking at futures and the increased willingness to move cattle and are reducing bids in anticipation that cattle will be moved without hesitation. Boxed beef continues to indicate strong demand, but cash looks to be in trouble again this week. The Commitment of Traders report showed funds as net sellers of 15,912 live cattle contracts. This brings their net-longs down to 71,319 contracts.

Hogs made a nice run higher despite corn moving limit-up Monday. Even though cash was a bit lower and cutouts were down, there is strong demand that needs to be filled. Packers continue to move through the countryside in search of hogs in order to keep chain speed high enough to satisfy demand. The concern over future supply and lower inventory being a concern, futures may continue to defy both higher grain prices and lower hog prices in the near term. Futures may be establishing a sideways price range, or it may be ready to trend higher. The Commitment of Traders report showed funds as net sellers of 4,714 futures contracts bringing their net-long positions down to 73,246 contracts.

	BULL SIDE		BEAR SIDE
1)	Traders took the numbers on the Cattle of Feed report as friendly to prices. This provided some interest in buying back into the market.	1)	Cattle futures may be trying to establish a bottom, but the inability to rally further Monday may indicate any price rally might be short-lived.
2)	Boxed beef prices were strong again Monday, indicating continued strong demand. This should provide some support to futures even though cash is lower.	2)	Weaker cash and lower packer bids does not bode well for prices this week. More cattle coming to the market may mean limited upside potential.
3)	Hog futures have made a nice rebound over the past two days. Strength, despite significantly higher grain prices, is a testament to the resiliency of the market and should keep futures no worse than sideways.	3)	Hog futures indicate the recent highs of the market were a bit overdone. Prices are now trying to find a level at which buyers and sellers will be content doing business.
4)	Futures are attempting to regain the losses in nearby months while December and later contracts made new highs Monday.	4)	Weekly export sales continued to be of concern. If China's demand is faltering due to greater internal supplies, supply could back up into the U.S over time.

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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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