DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $213.24 +0.56*

Hogs: Steady Futures: Mixed Lean Equiv: $103.49 +2.52**

*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:

December cattle futures are now front-month and with the activity last week, the premium it carries over cash is not quite as great as it had been for quite some time. Traders are more excited over the prospect of stronger cash through the end of the year, but one would not have thought that due to the activity on Friday. Dressed cattle in the North increased $4 last week while live cattle in the South gained $2. The anticipation is that packers will need to be aggressive again this week as they need cattle to satisfy brisk chain speed. Of course, nothing is likely to be done Monday with maybe only some showlists distributed. Cash is expected to trade earlier this week rather than later. Boxed beef is confirming a bottom is in place with choice up $0.83 and select up $0.73 on Friday.

Hogs may have turned a corner technically but may struggle fundamentally this week. Technically, a double bottom was established with buyers stepping into the market, accomplishing the task of closing one upper chart gap on Friday. Fundamentally, cash continued to struggle with the National Direct Afternoon price down $0.82. Pork cutouts closed $2.52 higher, which may provide some support if gains can hold. Recently, large increases in cutouts were followed by substantial weakness and this time may be no exception and will keep traders cautious. The attention for pork exports may be turning from putting significant emphasis on how much China is purchasing to how much Mexico is purchasing.

	BULL SIDE		BEAR SIDE
1)	Cattle futures remain in an uptrend despite weakness seen through the end of the week.	1)	Cattle futures not being able to maintain the gains of earlier in the week even with cash increased may mean limited upside potential.
2)	Cash is expected higher again this week with feedlots potentially looking for at least another $2. Packers seem to have turned more aggressive as they need cattle.	2)	The increase in cash paid by packers last week may be about all they want to pay for cattle unless boxed beef prices show further strength early in the week.
3)	The double bottom in hog futures bodes well technically. This may provide more confidence of traders to buy into the market for the long term.	3)	The significant increase of hog futures may be short-lived unless cash begins to find support.
4)	The increase in cutouts may indicate pork has reached value as demand absorbs increased production. Hog supplies are expected to tighten as time moves forward.	4)	Packers have not been aggressive as hog supplies have been readily available. There will be little need to raise bids this week.

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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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