DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $233.41 +4.04*

Hogs: Steady Futures: Higher Lean Equiv: $126.72 -4.59**

* 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:

Live cattle futures closed near the highs of the day Thursday, keeping the market within the sideways trading pattern. Futures may have limited upside Friday unless cash cattle trade develops more aggressively. So far, trade has been rather light with prices for live and dressed basically steady with last weeks weighted average. In general, feedlots are holding for higher prices with whatever trade that will take place, coming down to the wire again. Packers seem to be willing to close out the week short-bought again with contracted supplies dwindling. Boxed beef prices exploded Thursday with choice cuts up $7.13 and select cuts up $2.32. Hopefully, this should push packers to the table with higher bids.

Hog futures had another good day Thursday with a few contracts posting triple-digit gains. The August contract goes off the board Friday with October taking over as lead month next week. The huge discount of nearly $24.00 is very unusual and will need to begin narrowing. The average discount for this time of year is about $10.00. With still the idea of tighter supplies as the year progresses and the possibility of cutouts near a bottom, there is a strong chance October will increase. The National Direct Afternoon report showed packers a bit more aggressive with a gain of $0.51. However, cutouts plummeted $4.59. Saturday slaughter is projected at 79,000 head.

	BULL SIDE		BEAR SIDE
1)	Cattle futures were able to hold despite the increase of grain futures due to the WASDE report indicating strong support.	1)	Cattle futures have not been able to break out of the sideways trading range, keeping traders from taking long-term positions and continuing to scalp the market.
2)	Packers should step up to pay higher prices as they need the cattle as margins have improved immensely over the past week.	2)	Indications are that cash may not trade higher this week, leaving the market in a rather bearish position.
3)	Hog futures have completed two days of price retracement as traders have been taking advantage of the large price break to increase long positions.	3)	Hog futures could not hold the highs Thursday and may see little upside unless cutouts find support.
4)	Higher cash Thursday may indicate packers may need to increase their buying in order to keep processing in line with demand.	4)	Slower exports may leave sufficient pork supply available to the domestic market, keeping upside price potential limited.

**

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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