DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $243.84 -$1.30*

Hogs: Steady Futures: Mixed Lean Equiv: $139.26 -$1.51**

* 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 livestock complex showed a reversal of prices between cattle and lean hogs. Lean hogs have always been the market to watch with weakness short-lived even on an intra-day basis. It was just the opposite Friday with cattle posting the double-digit gains while hogs posted double-digit losses. This was a bit surprising as a top may have been reached for boxed beef. Choice cuts were down moderately with a decrease of $0.59 while select cuts plummeted $5.19. If that did not get the attention of traders, then nothing will. However, just because boxed beef is declining, it does not necessarily mean cash will falter. Cash was able to hold last week and there is some expectation cash might be steady this week. There will be no indication of bids or offers Monday as they will look over showlists. It might be tough to anticipate higher cash, but steady cash should be well within the range of possibilities. Demand for beef remains strong and lower beef prices might increase demand, resulting in packers needing to remain aggressive.

The question from Friday is whether lower hog futures were the result of profit-taking into the weekend or if that market has finally topped. It seems the first is in order due to tightening hog supplies and the aggressive nature of packers last week. Technically, hog futures needed to correct their overbought status and a correction in a bull market is always healthy to a strong trend. It does feel a little odd that I am not writing that new contract highs were made again in numerous contracts. Front-month June was the only contract which made a new high. Monday is the last day for the June contract and it will be interesting to see at what price it goes off the board. Lower price on the National Direct Afternoon report and the decline in cutouts of $1.51 on Friday may keep traders a bit on the defensive until they see Monday's prices unfold.

	BULL SIDE		BEAR SIDE
1)	Steady cash may carry over into this week even though boxed beef might show further weakness.	1)	Continued weakness of boxed beef may have a negative impact on the willingness of packers to even bid steady cash this week.
2)	Further weakness in grain prices may provide support to feeder and live cattle futures.	2)	The seasonal peak of beef may be behind and it may be tough to generate continued exceptional demand through the summer.
3)	So far, traders have viewed weakness in futures as a buying opportunity. Traders may step back up to the plate soon.	3)	Hogs are going to reach a top at some point and the fact that we are halfway through June moves the needle closer to the seasonal top.
4)	The weakness of cash hogs Friday may only be the result of packers having done most of their business earlier in the week. They may need to step back in aggressively to obtain supply.	4)	Now that futures fell Friday, the chart gap remaining in the July contract about $3.00 lower becomes of greater concern. It could reach for that level before futures correct their overbought status.

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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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