DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $205.41 -1.74*

Hogs: Steady Futures: Higher Lean Equiv: $123.17 -0.38**

* 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 higher close on Friday for cattle gave a ray of hope that futures may not continue to fall. However, there wasn't much to suggest solid support has been reached. Maybe the higher close was the result of positioning before the weekend. Cash did not perform any better than the week before and boxed beef continues to plummet. This will keep packers less aggressive this week. However, export sales were good at 23,700 metric tons (mt), up 96% from the previous week and up 64% from the four-week average. The market will need to see more of that in order to keep beef from backing up domestically. The market may not do to much as traders await the World Agricultural Supply and Demand report out Monday at 11:00 a.m. CT. The report will have an influence on grain prices and subsequently, cattle futures. It may also dictate whether packers may need to bid steady with last week or lower bids if grain price shoot higher.

Hogs closed the week on a strong note, but it has not changed the trend. July has been in a nice uptrend as it keeps pace with cash. There are only three days remaining to the contract before August takes over as front month. The National Direct Afternoon report showed price up $2.04 with aggressive packer buying. Support stemmed from a positive export sales report, which showed sales of 43,800 mt, up 53% from the previous week and up 65% from the four-week average. The positive aspect of the report was that China was the largest buyer. This provided fodder for traders with follow-through buying possible early this week. Cutouts declining $0.72 may limit some strength.

	BULL SIDE		BEAR SIDE
1)	Stronger international interest for beef may require packers to be more aggressive in the cash market.	1)	The stronger close in live cattle futures has not been able to push the market back above technical support. Packers may not be too aggressive in the cash market this week.
2)	Lower boxed beef prices should stimulate greater consumer buying interest as beef becomes less expensive.	2)	Continued substantial weakness of boxed beef will make packers less willing to bid higher to purchase cattle.
3)	The substantial discount of August futures to cash will need to be made up for once it become the spot month on Thursday and it will need to move closer to cash.	3)	Hog futures indicate a substantial weakness of cash as the discounts are large through the end of the year.
4)	China being the number one buyer on the export sales report may indicate they will continue to remain a large buyer of pork.	4)	Hogs weights are lighter, but there continues to be sufficient supply even though there has been talk of tightening supply as the year progresses. Packers have been able to get what they need.

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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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