DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $214.54 -1.36*

Hogs: Lower Futures: Mixed Lean Equiv: $119.56 -0.99**

* 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 strength in the castle complex did not stem from higher cash trading due to no activity other than the distribution of showlists. Cash trading was not expected and may also not take place Tuesday. The only positive fundamental aspect Monday was the slight increase of $0.32 for select cuts. Increases in boxed beef have been few and far between over the past weeks. Choice cuts continued lower declining $3.18. The general aspect of the market was the fact that futures were oversold and short-covering was triggered, moving prices higher, erasing the losses of last week. The rally may be limited without a change in fundamental support. The Commitment of Traders report showed funds as net sellers of 5,934 live cattle futures contracts reducing their net-long position to 28,770 contracts.

Hog futures started out slightly lower and then went downhill from there, resulting in triple-digit losses. The chart gaps in October, December and February were quickly filled, but that did not stem the selling tide. The market needed to correct the overbought condition both technically and fundamentally. Cash and cutouts had not supported the sharp rally last week and a correction was needed. Cash was again lower on the National Direct Afternoon report with price down $0.91. Cutouts could not hold, declining $0.99 for the day. Futures will be volatile as traders balance the potential for tighter supplies with current fundamental weakness. The Commitment of Traders showed funds as net buyers of 9,775 futures contracts, increasing their net-long positions to 65,633 contracts.

	BULL SIDE		BEAR SIDE
1)	Cattle futures finally bounced with a much-needed price correction. These corrections may last two the three days before the market has been repositioned.	1)	The price rally in cattle futures seems to have been technical in nature and not driven fundamentally.
2)	One category of boxed beef finally posted an increase of price possibly indicating prices may have finally corrected sufficiently.	2)	Funds continue to liquidate long positions as increasing cattle numbers and the less aggressive nature of packers does not support much upside price potential.
3)	Hogs closed the nearby chart gap, which eliminated that concern for technical traders.	3)	Hog futures may have entered into a liquidation phase, which may continue for the next day or two.
4)	Traders may view this price break as a buying opportunity as the strong potential for tightening hog supply has not been eliminated.	4)	Chart gaps still remain quite a bit lower in all contracts. Generally, these gaps are filled before contracts go off the board..

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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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