DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $244.92 -$0.73*

Hogs: Steady Futures: Mixed Lean Equiv: $141.45 +$1.44**

* 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:

Boxed beef closed lower for the second consecutive day with choice down $0.38 and select down $2.56. Traders and packers will be paying close attention to this as a slide had been anticipated after the Memorial Day holiday was past. There is no doubt demand remains strong, but strong demand does not mean prices will continue to increase. Demand can remain strong even at lower prices or increase as beef become less expensive. There was no cash business done Monday, nor was there any anticipated. Showlists were distributed, providing some indication of what might be available. The weakness of boxed beef may result in lower packer bids even though there is a widespread between cash and boxed beef. Packers will use the weakness as the reason to hold back on bids and hopefully be able to procure the needed cattle for the week. The Commitment of Traders report showed funds as net sellers of 7.708 futures contracts for the week ended June 1. This reduced their net-long positions to 50,200 contracts.

Hog futures just could not help themselves and moved higher with July making the most impressive move, closing $1.50 higher after reaching $3.00 higher at one point. New contract highs were again posted throughout the complex with the exception of front-month June as it has one week before the contract ends. Packers were aggressive right out of the gate with the National Direct price up $1.10 Monday. They are not being shy about purchasing hogs to meet strong demand. Cutouts supported the need to purchase, being up $1.44. The Commitment of Traders report showed funds as net buyers of 3,895 contracts, bringing their total net longs to 82,632 contracts.

	BULL SIDE		BEAR SIDE
1)	Even though boxed beef slipped, demand is strong, which could keep packers willing to purchase at no less than steady cash.	1)	Packers may bid lower due to the recent weakness of boxed beef. They are enjoying strong margins and want to preserve that as long as possible.
2)	Packers have very strong margins and may be willing to pay to procure the needed cattle rather than risk not meeting strong demand.	2)	Increasing grain prices might cause feedlots to want to move cattle rather than hold onto them increasing feed costs.
3)	Hog futures continue to post new contract highs, keeping traders purchasing as the trend is up.	3)	Hog futures are becoming overbought and may result in a technical correction at some point.
4)	Strong demand and higher cash keep the price outlook positive. At present, there is no end in sight for consumer demand or a resistance to price.	4)	There is always talk about tightening hog numbers, but the rate of slaughter does not indicate that to be the case so far.

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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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