DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $198.99 -$0.68*

Hogs: Steady Futures: Mixed Lean Equiv: $116.32 -$2.71**

*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 were cautiously higher in August and later contracts. June posted a triple-digit gain as it was caught in the downdraft Monday and needed to correct as cash remains higher. Some light cash trade Tuesday points to higher prices as packers may need to be somewhat aggressive again. However, if slaughter is slowing and cutouts struggling, the increase of cash may be less than hoped. Feedlots will be the deciding factor as they weigh the cost of holding cattle another week. Cutouts declined Tuesday with choice down $1.10 and select down $0.63. Concern over beef demand continues to roll around in the market due to the impact of higher prices in the grocery store due to inflation. The Federal Reserve will announce a rate decision Wednesday with expectations for a 75-basis-point rate hike in the attempt to cool inflation.

Hog futures again struggled after initially opening higher. June hogs are now history with July taking over as the front month, carrying a discount to where June went off the board. Cash jumped substantially as packers aggressively went after hogs showing a gain of $6.09 on the National Daily Direct Afternoon hog report. However, cutouts moved in the other direction, eliminating Monday's gain and then some closing $2.71 lower. Slaughter pace has been lagging with a large revision lower from the original stated number Monday. Packers are not expected to be quite as aggressive Wednesday.

	BULL SIDE		BEAR SIDE
1)	Early indications are that cattle should trade higher this week. Packers need cattle and will be willing to pay more for them.	1)	Slowing of slaughter pace may indicate a slowing of demand as boxed beef prices are struggling.
2)	Chart gaps remain above the current price levels for both live cattle and feeder cattle; they will be closed.	2)	Stronger cash cattle may be short-lived if beef demand slows due to the impact of inflation on consumer spending.
3)	Very strong cash Tuesday should provide support for futures as packers certainly needed hogs, even though slaughter pace has slowed.	3)	Spread trading was evident in hog futures as traders buy the back months and sell the nearby months.
4)	July takes over as the lead month, carrying a discount to the index. This may provide support to futures.	4)	Slower slaughter pace does not bode well for the market as hog weights may increase. The surging U.S. dollar may also impact exports.

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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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