DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv $182.24 +$0.38*

Hogs: Higher Futures: Higher Lean Equiv: $107.70 +2.27**

* 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 had a fire lit under them with futures posting some nice gains. Futures are trying to correct from an oversold position but have so far not made much progress. A least there was some strength, which may bring more buyers into the market. There was no cash activity Monday as usual, but there is hope that packers may need to buy cattle more aggressively this week. It was positive to see boxed beef closing higher in both categories. Choice gained $2.19 while select increased $1.18. We must exercise caution as one day of gains for boxed beef does not indicate a change in trend. Packers want to see margins improve and they may not be very willing to pay higher money for cattle because of a positive start to the week. The Commitment of Traders report showed funds as net sellers of 11,148 contracts bringing their net-long positions to 62,075 contracts. Feeder cattle futures bounced likely due to an oversold market and the beginning of a new month and new quarter.

Hogs extended the gains of Friday in all months except October. October is trading closely in line with the index as it has less than two weeks left to trade. Price strength certainly did not come from cash as the National Direct Afternoon Hog report showed a decline of $2.41. Some strength came from technical buying and some strength came from the $2.34 increase of cutouts. Seeing that packers were not aggressive Monday, it is likely they will bid more aggressively Tuesday to obtain the hogs they need this week. Traders remain cautious over buying futures aggressively due to the large decline seen recently and the seemingly lackluster movement of pork. The Commitment of Traders report showed funds as net sellers of 23,535 futures contracts bring their net-long positions to 41,129 contracts.

	BULL SIDE		BEAR SIDE
1)	Live cattle futures may be building a base which may give confidence to traders to buy into the market.	1)	A strong slaughter pace for cattle has not been able to provide sustained support for prices. Sufficient cattle remain available to the market.
2)	Feedlots will want at least $1.00 higher for their cattle this week as expenses increase and packers may need to purchase to maintain slaughter pace.	2)	Ongoing demand concerns remain in the market. Boxed beef prices may continue to struggle even though they were higher Monday.
3)	Hog futures should make at least a 50% retracement based on the magnitude of the recent decline.	3)	Pork cutouts have not been able to trend higher which keeps upside potential limited.
4)	Hog futures are oversold, and traders may be more willing by buy into the market now that it is a new month.	4)	Increasing slaughter speed has not yet been able to provide support under the market. There are sufficient hogs available for packers when they need them.

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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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