DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $218.31 +2.04*

Hogs: Higher Futures: Higher Lean Equiv: $117.07 +2.94**

* 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:

The April live cattle contract is now history and it finished trading with a bang, falling to $116.00. June is now front month and is only slightly higher than where April finished, indicating that the trade does not expect stronger cash prices in the near term. June futures were able to close higher for the week but have carved out a definite sideways trading range. Grain futures trading limits are expanded as of the beginning of this week in anticipation of greater volatility this summer. Higher grain prices will have substantial impact on cattle prices. This we have already seen. Feedlots were willing to move cattle at lower prices in order to reduce feed consumption. Boxed beef prices closed significantly higher, which will keep packers anxious to purchase cattle this week to keep chain speed high to meet demand. However, packers have not had to bid up to get sufficient supply and they have had the benefit of the grain markets on their side.

Hogs did an about face on Friday with June and July closing limit up. All futures contracts closed at new highs turning the trend in all contracts solidly higher. There should be some follow through Monday at the beginning, but there is no way of telling whether that will carry throughout the day. Cash turned higher Friday along with strong cutouts. High grain prices are not affecting hogs as they are for cattle. But it will have a greater impact over time as there may be lower hog numbers due to a reduced desire to keep hog barns full. Forward contracted grain will run out possibly resulting in the reduction of the numbers of hogs that will be fed. Even packer-contracted or owned operations may reduce numbers as packers may not want to pay the high feed prices. Of course, this will tighten the market further over time until high pork prices will reach buyer resistance and reduce demand. However, that is not now, and higher prices are expected.

	BULL SIDE		BEAR SIDE
1)	Live cattle were able to close in positive territory despite corn futures closing limit up in nearby months on Friday.	1)	June cattle futures are now the front-month contract and are carrying a discount to cash. Traders anticipate further cash weakness.
2)	Futures have established a sideways trading pattern. With strong boxed beef last week, the market should remain supported in the current range even if cash declines further.	2)	Feeder cattle plummeted on Friday and are reacting to high grain prices. They may be an anchor that will weigh on live cattle futures.
3)	Hog futures closed strong with all contracts closing at new contract highs.	3)	The current price may be unsustainable for very long. Buyer resistance may be near and may show up in the export market first.
4)	Packers remain aggressive due to higher cutouts and strong demand. Tightening supplies are a reality and will not change anytime soon.	4)	Cumulative pork sales so far this year total 904,547 metric tons (mt), down from 993,803 mt during the same period of time last year.

**

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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