DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $231.01 +0.39*

Hogs: Lower Futures: Mixed Lean Equiv: $122.78 +2.01**

* 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 Thursday with futures falling in all categories of the livestock complex. Live cattle were hit hard, eliminating basically all of the gains of the week. Plummeting grain prices had no influence as the cattle market was trumped by the rumor of a major beef plant not running a Saturday slaughter schedule. This is a bit confusing due to strong boxed beef prices and slaughter weights declining. One would think packers would want to process cattle in order to meet demand and take advantage of the phenomenal price spread between cash and boxed beef. Maybe the substantial profits being made are allowing them to take some time off. Prior to that rumor surfacing, the dismal exports sales report of only 13,100 metric tons of sales, which were down 22% from last week and down 35% from the four-week average, set the stage for lower futures. The drop in futures will be difficult to regain as those traders who recently bought into the market got burnt and may remain sidelined.

Hogs again took a beating, but not to the extent of cattle, but significant losses nonetheless. Lower weekly export sales had a large influence of the selling pressure with sales of 14,700 metric tons, down 69% from last week and down 25% from the four-week average. China was the second largest buyer, but they have trimmed their purchases quite noticeably over the past number of weeks. Cash also was down Thursday with the National Direct Hog report showing cash down $2.28. There is an unfilled price gap in the August futures contract. Saturday slaughter is projected to be 15,000 head.

	BULL SIDE		BEAR SIDE
1)	June cattle have a substantial discount to cash, which should bring futures back up. Cash is expected to be no worse than it currently is moving forward.	1)	The failure of the cattle market Thursday in the face of falling grain prices is not a good sign. It may indicate the inability of prices rising is not just the result of high feed prices.
2)	The knee-jerk reaction of the trade based on the rumor of a beef plant not running on Saturday might have run its course. It should have little lasting impact on the whole of the industry.	2)	If less cattle will be processed due to a major plant closing on Saturday and another possibly next week, there may be limited reason for packers to be aggressive with purchases in the near-term, limiting cash potential.
3)	The good news is that both the June and August hog futures contracts closed their chart gaps that were left in the market on May 3. Technical traders can now put that behind them.	3)	The bad news is that July hog futures have not closed their price gap that was left on May 3. Unfortunately, price will need to drop 85 cents to accomplish that task.
4)	Pork cutouts was significantly higher Thursday offsetting lower cash. Packers will need to remain aggressive to purchase the hogs to fill demand.	4)	If demand from China continues to taper off and exports decline as a whole, it may allow for more pork to be available domestically.

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For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CDT. 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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