DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $254.58 +$1.65*

Hogs: Steady Futures: Mixed Lean Equiv: $120.81 -$6.00**

* 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:

Both live and feeder cattle found strong support from the Cattle on Feed report with all contracts making new highs Monday. The exception was August feeder cattle as it will cease trading Thursday and is moving in close relationship with the index. There was no cash news Monday as usual, but when offers are posted by feedlots, they are expected to be higher and firm. The surge of futures and the prospect for tightening supplies will give feedlots the confidence to hold. Packers will be forced to bid higher to obtain needed cattle to keep plants running at desired levels. Boxed beef continued to increase with choice cuts up $2.97 and select cuts up $0.87. The July Cold Storage report showed beef inventory at 401.3 million pounds, slightly lower than June, but 9% below a year ago. The Commitment of Traders report showed funds as net buyers of 1,961 contracts, increasing their net-long positions to 70,773 contracts.

Hog futures were initially higher Monday, from the strong support seen in cattle, but that spillover support waned in a short period of time as traders looked at the fundamentals. The National Direct Afternoon report showed price falling $3.72. Cutouts fell substantially, posting a loss of $6.00. This put most of the pressure on the nearby October contract which fell $1.15. The rest of the complex pondered the prospects for cash in the long-term, finding no real direction. Pork in cold storage totaled 443.1 million pounds. This was slightly higher than June, but 6% lower than a year ago. There was a decline in belly stocks of 24% from June with current supply down 35% from a year ago. The Commitment of Traders report showed funds as net buyers of 166 contracts, bringing their net longs to 77,020 contracts.

	BULL SIDE		BEAR SIDE
1)	Cattle futures broke out to the upside, breaking a streak of sideways trading since early June.	1)	The breakout of cattle Monday may have been fueled by short-covering and a knee-jerk reaction to the Cattle on Feed report. The large increase may not hold.
2)	The prospect is for tightening cattle supply as the year progresses, which should bring packers to the table more aggressively.	2)	Boxed beef prices may be showing signs of slowing as strong demand in preparation for Labor Day may have about run its course.
3)	October hog futures fell back but remained in their recent sideways trading range.	3)	The weakness of pork cutouts will keep packers less aggressive buyers in the country.
4)	The chart gap in October remains above the market and will be a target for technical traders if underlying fundamentals turn more positive.	4)	Hog futures seem to be settling into a sideways trading range at best for the time being.

**

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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