DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $190.36 +$0.39*

Hogs: Higher Futures: Mixed Lean Equiv: $99.84 -$1.45**

*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:

The cattle market gapped open as expected, but futures did not move as high as most expected. This is understandable as futures moved up last week, having already some of it factored in. Nevertheless, the gains pushed April and later live cattle contracts to new highs with nearby December and February positioned to challenge the highs. Cash cattle did not trade, but boxed beef was supportive. Choice cuts were up $0.51 with select up $0.79. Cash business may surface Tuesday due to the holiday-shortened week with expectations of stronger cash. Feeder cattle found support not only from the Cattle on Feed report but also from the pressure on corn futures Monday. Feeder cattle prices at auctions remain mixed. The Commitment of Traders report showed funds reducing their long positions by 10,475 contracts to a net-long position of 49,704.

Hog futures showed spread trading again with pressure on front-month December. There is a growing optimism over hog prices next year with July, August, and September contracts making new highs. Cash traded higher Monday with the National Direct Afternoon Hog report showing a gain of $0.35. This is unusual for a Monday, but business needed to be done due to the shorter week. Cutouts were not supportive, declining $1.45. Slaughter continues to remain strong with more hogs needed to fill the increased pace. The Commitment of Traders report showed funds increasing their long positions by 901 contracts to a net long of 53,460 futures contracts.

	BULL SIDE		BEAR SIDE
1)	Later cattle contracts made new highs, which should provide confidence for traders to buy and hold positions.	1)	Both live and feeder cattle contracts have gaps below the market that will be filled.
2)	Cattle supplies will become tighter as time progresses, as indicated by the Cattle on Feed report. Prices should remain supported and move higher.	2)	Boxed beef continues to flounder, leaving packer margins substantially lower than last year and the three-year average. Packers may reduce slaughter pace moving into next year.
3)	Increased hog slaughter continues to pull hogs forward, keeping weights lower. This should tighten supply over time.	3)	Hog cutouts have not been able to trend higher. Increased slaughter leaves a plentiful supply of pork available to the market.
4)	There is strong optimism for hog prices next year with summer prices well into the triple-digits.	4)	Packers do not need to be aggressively chasing hogs in the country. The supply of hogs is sufficient to meet demand without any concern on the lack of supply.

**

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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