DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $195.60 -$0.07*

Hogs: Higher Futures: Higher Lean Equiv: $115.86 +$1.19**

*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:

Live cattle just could not muster sufficient trader interest to push futures to strong gains. Traders are taking a wait-and-see attitude over just how cash will shake out this week. There was some light trade in the South $1.00 lower than last week, but nothing that traders could hang their hats on. Packers are not expected to be aggressive this week, so it will be up to the feedlots as to at what price they will be willing to part with their cattle. The weakness of corn Tuesday and, again, weakness overnight might give feedlots more confidence to hold for steady cash. Boxed beef was mixed with choice down $0.63 and select up $1.12. Feeder cattle may see further gains as overnight corn futures show further weakness. The potential corn export agreement between China and Brazil may reduce export demand and price, making feeding cattle a bit less expensive.

Hog futures looked somewhat dismal earlier Tuesday as contracts fell over $3.00 at one point. However, as strong cash began developing and cutouts showed promise, futures reduced some of the losses. The National Direct Afternoon Hog report showed an impressive jump of $6.33. Packers definitely needed hogs. Cutouts increased $1.19, keeping the trend of higher cutouts intact. Futures will need to regain Tuesday's losses to keep the uptrend intact. Futures are not overbought, which should provide technical traders some confidence that the market may have further upside potential.

	BULL SIDE		BEAR SIDE
1)	Lower corn prices could cause feedlots to hold for mostly steady cash this week. There is potential for further losses in corn due to a pending export agreement between China and Brazil.	1)	Initial trade for cattle took place $1.00 lower than last week. This may be an indication as to the level at which packers will be willing to pay.
2)	June cattle hold a significant discount to cash, and it seems traders have already looked past the bearish Cattle on Feed report.	2)	There will be a lot of cattle that will be available to the market over the next weeks, which may keep upside potential limited.
3)	Hog futures rebounded from the lows Tuesday as cash and cutouts pointed higher. Strength may unfold Wednesday.	3)	It may be difficult for futures to regain the losses of Tuesday if cash and cutouts are unable to follow through Wednesday or the rest of the week.
4)	Hog supplies seem to be more current, which requires packers to be more aggressive. Supplies are expected to tighten as the year progresses.	4)	Seasonal demand will need to carry through after Memorial Day or prices may stall. Consumers are seeing widespread higher food prices.

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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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