DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $254.29 +0.99*

Hogs: Steady Futures: Mixed Lean Equiv: $123.95 +$6.16**

* 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 never really saw the light of day Thursday as futures opened about steady and then spent much of the day in negative territory. The bullishness of the report last Friday has waned with traders seeing declining boxed beef prices as well as limited gains in cash. Cash trade began developing Thursday, but activity was not aggressive. Most cash was about $1 higher, which carries with it some disappointment that higher prices have not been realized. Maybe packers will need to be more aggressive Friday. But, but again, the stage may have been set for the rest of the week, especially with declining futures. Slaughter numbers so far this week are running significantly behind last week and last year. The issue seems not to be tighter cattle supply, but rather ongoing labor shortages as well as mechanical breakdowns. With large margins, packers would want to meet demand with larger numbers, but these issues are ongoing.

Hog futures continue to move in a sideways pattern as prices remain choppy. Traders are uncertain of market direction and continue to trade the sideways pattern. Packers were not aggressive in the cash market Thursday with the National Direct Afternoon report showing price down $1.21. However, cutouts surged $6.16 led by hams increasing $20.19. The nearby October contract is in no hurry to reduce the large price gap between it and the index. Saturday slaughter is estimated at 118,000 head.

	BULL SIDE		BEAR SIDE
1)	Cash cattle have traded $1 higher so far this week with the potential for yet higher trade as feedlots hope to capture some of the packers' margins.	1)	Cattle futures have not been able to hold the large gains after the Cattle on Feed report last Friday. Nearly all the gains have been eliminated in August and October with October nearly closing the chart gap left on Monday's jump.
2)	Cattle futures have fallen the past three days, which should end the liquidation and uncover some support	2)	Cash at $1 higher might be all packers are willing to pay as they see weakening boxed beef and the fallback of futures.
3)	Hogs futures may be building technical support and they continue to trade in a sideways pattern.	3)	Hog futures have been unable to break out of the sideways trading range, building resistance and leaving the market vulnerable for liquidation.
4)	The surge of cutouts Thursday may indicate strengthening demand and pork may possibly gain some market share from beef.	4)	There is no shortage of hogs with packers able to obtain sufficient numbers without being very aggressive.

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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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