DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $195.67 +$1.28*

Hogs: Steady Futures: Mixed Lean Equiv: $114.67 -$0.06**

*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 rebounded after being oversold into the Cattle on Feed report. The market was overdone to the downside, resulting in the general pattern of moving in the opposite direction of what the report would indicate. Gains were not very impressive as the market continues to deal with the strong potential of lower cash again this week. Sure, futures are holding a discount to cash; but that might be warranted. Showlists are higher this week, which provides packers the ability to bid lower as they certainly are not short bought on cattle. The Cold Storage report showed beef supplies up 18% from a year ago. The Commitment of Traders report showed funds as net sellers of 4,321 contracts, bringing their net-long positions to 25,628 contracts.

Hogs extended the gains of last week with June closing above the 50% retracement level. This could continue to provide technical strength to the market as the next level of chart resistance is about $3.00 higher. That will need to be supported by cash, which floundered Monday, closing $6.72 lower on the National Direct Afternoon Hog report. Cutouts have been very strong but showed slight weakness Monday, closing $0.06 lower. Packers may not be very aggressive Tuesday, but lower prices could increase their desire to step up more aggressively. Pork in cold storage was 16% higher than a year ago during the month of April. Pork belly stocks were 67% higher than a year ago. The Commitment of Traders report showed funds as net sellers of 10,045 contracts, reducing their net-long positions to 10,563 contracts.

	BULL SIDE		BEAR SIDE
1)	Follow-through buying in cattle might take place Tuesday due to the bounce Monday and the minor pressure overnight on the corn market.	1)	Both live cattle and feeder cattle futures made new lows before turning higher. Fundamentals suggest this is a correction of being oversold rather than a change in trend.
2)	Cattle futures may have established a technical reversal Monday, which could trigger further buying as the market corrects an oversold condition.	2)	Higher showlists and packers already having a significant amount of cattle contracted for the next few weeks do not bode well for higher prices.
3)	June hog futures closed above the 50% retracement level, which could bring in further technical buying.	3)	The strength of hog futures Monday was not supported by cash. This could stall the rally unless further cash strength is realized.
4)	Demand has improved as pork cutouts have increased dramatically. Packers may remain aggressive as they need to maintain a strong slaughter pace.	4)	Hog futures may consolidate as traders wait to see whether cutouts will continue to trend higher.

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For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CST. 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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