DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $211.86 -1.25*

Hogs: Steady Futures: Lower Lean Equiv: $114.07 -5.35**

*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:

It was a good week for cattle with live cattle futures, gaining around $5.00 and feeder cattle up around $7.00 to $8.00. This has corrected an oversold market. Underlying fundamentals may not fully support this move, but nevertheless, it was long overdue. Futures have moved more to where they probably should be. The long liquidation phase by the funds seems to have run its course. Now it will be up to underlying cash to dictate whether current prices will hold. The market has overall bearish fundamentals as far as supply is concerned, but that does not indicate that prices will fall back. It more likely indicates limited upside potential. Cash trade last week at steady to $1 higher provides some optimism for steady to higher prices again this week. The anchor might be the uncertainty of boxed beef prices after both choice and select cuts fell on Friday.

Hog futures made a valiant attempt to move higher, but further weakness of cash and cutouts were not supportive of the market. Even though there is optimism over higher prices as time progresses due to potentially tightening supplies, the here and now does not support that optimism. Packers do not need to be very aggressive in the country as hogs are available. Price on the National Direct Afternoon report on Friday declined $0.92. The greater concern was the substantial fall of cutouts. All main categories of cutouts declined, with the exception of butts, leaving the overall price down $5.27. This likely will keep pressure on the market to begin the week.

	BULL SIDE		BEAR SIDE
1)	Cattle may continue to run on the current momentum as traders buy into the market. The trend is your friend.	1)	Cattle futures may have run up too fast without underlying prices support. The weakness of boxed beef may limit gains.
2)	There is a strong potential for cash to trade steady to higher again this week based on recent activity.	2)	Cattle futures may drift sideways as traders assess demand and the availability of cattle.
3)	October hogs will go off the board on Thursday, leaving December with a large discount that will need to be corrected.	3)	Hog futures have a large price gap below the market that mostly likely will be filled at some point, leaving traders less willing to purchase for the long term.
4)	The potential of tighter supplies may limit the ability of packers to continue to purchase hogs without having to be more aggressive.	4)	Plummeting cutouts on Friday does not paint a positive picture for this week.

**

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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