DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $211.24 +0.68*

Hogs: Steady Futures: Mixed Lean Equiv: $105.24 -0.05**

*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:

Cattle futures fell sharply into the close as fear of a bearish Cattle on Feed report swept through the market. That fear was unfounded as the report may be considered somewhat friendly. Oct. 1 on feed numbers were 99% of last year slightly below the average traded estimate of 99.3%. Placements were 97% of a year ago compared to the average trade estimate of 101.4%. Marketings were 97% compared to the average trade estimate of 97.2%. The most striking aspect of the report is that placements were significantly lower than anticipated. Although cattle and calves on feed were 1% below a year ago, it was the second highest inventory for the October report since the series began in 1996. The report is expected to trigger buying interest from traders due to actual numbers versus estimates. Further support may be seen from higher boxed beef prices on Friday with choice up $1.16 and select up $0.39. Cash is expected to be quiet as usual for the beginning of the week.

Fundamentally, lean hogs do not have much to get excited about. Cash has been lower last week with Friday being the exception as price on the National Direct Afternoon report showed an increase of $0.20. Cutouts were down just $0.01 at $98.27. This certainly does not yet signal a change in market direction, but the magnitude of the decline last week puts the market in an oversold condition. It seems like the best the market has to offer is two price gaps in the charts that may be filled at some point. Both of these vary by month with nearby December gaps about $3 higher and $8 higher than the current level. This may not happen anytime soon, but they are technical points of interest.

	BULL SIDE		BEAR SIDE
1)	The Cattle on Feed report was friendly and should result in strong buying interest by traders.	1)	Even with higher prices expected as a result of the Cattle on Feed report, futures may only regain what was lost last week.
2)	The choppiness of boxed beef prices last week could signal the market may be establishing a bottom as prices may have found value.	2)	Packers are not expected to increase bids as they know there are market-ready cattle that need to come to the market. If feedlots hold out, weights will increase.
3)	Hog futures are oversold and ripe for a price retracement as the market may be overdone to the downside and nearing strong support.	3)	Packers are able to obtain sufficient hogs to meet demand without having to look very hard to find them.
4)	The market is working through heavy hog supplies with numbers expected to tighten over time.	4)	Hog futures may test chart support from mid-September, which is about $2 lower before technical traders may be comfortable buying into the market for the long term.

**

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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