DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $192.44 +$1.09*

Hogs: steady Futures: Mixed Lean Equiv: $110.01 +$0.14**

*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 made impressive gains ahead of the weekend, which caused live cattle to break above the downtrend that has been in place for over the past two weeks. One needs to be careful to say that the market has turned the corner due to much of the activity likely being short-covering ahead of the weekend. Lower cash last week did not support the rally, but optimism reigned as packers were not very aggressive last week. The idea being they will need to step up to the plate again soon. Boxed beef closed higher with choice up $1.35 and select up $1.99. Feeder cattle showed gains even through corn was higher due to spillover support from live cattle. Feeder cattle prices at auctions last week showed weakness. Funds reduced their net-long positions by 5,651 contracts on the Commitment of Traders report. This brings their net-long positions to 57,997 futures.

Hogs closed lower through June 2023 contracts. Front-month October finally closed the chart gap that had been a formidable target since July 6. Technical traders may be more apt to buy futures more aggressively now that that has been accomplished. However, with weak cash and low packer margins, the fundamentals do not look very promising. The National Direct Afternoon Hog report showed cash down $2.07. Packer margins have fallen dramatically, leaving packers on the defensive. However, this may change if it follows a similar pattern as last year when they moved this low. Margins rebounded quickly, allowing cash to improve and futures to increase. Pork cutouts were up $0.39 on Friday. The Commitment of Traders report showed funds reducing their net-long positions by 9,468 contracts, bringing their net-long positions to 54,000 contracts.

	BULL SIDE		BEAR SIDE
1)	The recent downtrend in live cattle may have been broken Friday which may turn traders more friendly to the market.	1)	Cattle futures may have broken the downtrend only because of short-covering into the weekend. The downtrend may resume if packers remain unaggressive this week.
2)	Packers may be more aggressive this week as they will need to purchase cattle to maintain strong slaughter. They were not very active buyers last week.	2)	Cattle weights have been increasing, indicating plentiful supplies may be available in the short term.
3)	October hogs closing the chart gap may turn technical traders more friendly to the market.	3)	Packers may not be very aggressive again this week due to poor margins. Pork prices will need to improve to see higher cash.
4)	Packers shied away from the market last week but may be more aggressive if pork movement was strong over the holiday and retailers replenish supplies.	4)	Hog futures may retest chart support at the recent lows before traders will feel more confident buying into the market more aggressively.

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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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