DTN Early Word Livestock Comments

Cattle: Higher Futures: Lower Live Equiv: $191.17 +$1.12*

Hogs: Higher Futures: Lower Lean Equiv: $106.26 -$3.60**

*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:

Cash is expected to trade higher this week, but it seems traders want to see the extent of the increase rather than leading the market higher. Demand remains good as boxed beef prices showed strong gains Tuesday. Choice increased $3.51 with select up $1.74. Slaughter pace continues to remain brisk as packers need to fill demand. Feedlots will try to capitalize on the cash strength of the past few weeks and will hold out for higher prices. Feeder cattle suffered triple-digit losses in large part due to higher grain prices. Front-month October gained $0.92 as it remains close to the index as Thursday is the final trading day for the contract.

Hog futures struggled for a period during Tuesday but closed higher in the end. Traders have not seen the need to liquidate their long positions but that may change if the market stalls. The National Direct Afternoon Hog report showed cash up $7.59 with further gain expected Wednesday. However, cutouts did not perform very well with a loss of $3.44. The question is whether strong cash or lower cutouts will influence trading Wednesday. The aggressive pace of slaughter may keep the market supported, but it is putting more pork on the market which may limit price gains.

	BULL SIDE		BEAR SIDE
1)	Feedlots will again hold for higher prices, knowing packers are looking for cattle to satisfy higher slaughter rates.	1)	Food prices continue to increase, which could result in some slowing of demand for beef. Restaurant traffic has showed signs of slowing.
2)	Boxed beef indicates strong demand as retail is aggressively purchasing to stock shelves.	2)	Cattle futures are overbought and ripe for a correction. With higher cash already factored in, there may be limited upside potential.
3)	The expectation of higher cash hogs again Wednesday may provide support to futures as packers actively look for supply.	3)	Pork production is expected to increase in the months ahead, which would keep sufficient hogs available for demand and then some, leaving packers less aggressive.
4)	Hog futures may challenge contract highs if the market holds and moves above the previous high in September.	4)	The recent sharp rise of futures leaves the market overbought, increasing the potential for a price retracement.

**

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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