DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $217.56 +$0.43*

Hogs: Higher Futures: Higher Lean Equiv: $94.65 +$2.57**

*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 futures attempted to push higher with a few live cattle and feeder cattle contracts making new highs Monday but could not hold those levels. The packers had to pay up for cattle last week and they will be loath to do so again this week. It appears they may be reducing slaughter to boost boxed beef prices as well as back-up cattle supply a little. There were no offers posted by feedlots but when they arrive those offers will be higher. Packers may hold the line this week if they can. They did not purchase a large amount of cattle for deferred delivery and will need to be active, but likely not as they were last week. Boxed beef closed higher with choice up $0.04 and select up $1.94. Struggling boxed beef prices are not helping packer profitability. Feeder cattle futures fared better with continuing support from stronger cattle prices at auctions.

Hog futures did not show much volatility Monday with contracts mostly confined to about $1.00 range. Traders waited to see how weekend demand was. It must have been good as the packers were aggressive to begin the week, which generally they are not. The National Daily Direct Afternoon Hog report showed cash gaining $1.42. This may influence futures Tuesday with more aggressive buying interest. Cutouts gaining $2.57 should also provide some support. The Wall Street Journal article about the efficiency of pork production over the past years exceeding demand provides concern over the upside price potential. This industry is looking to target the younger population with the benefits of pork and exploring more export markets to improve demand.

	BULL SIDE		BEAR SIDE
1)	Tight supplies should continue to provide support to the market. Packers will need to continue to purchase cattle to satisfy the demand for beef.	1)	The slaughter pace may be slowing in the attempt to back up cattle and improve packer margins. Higher cash may be difficult to achieve this week.
2)	Cattle futures continue to maintain an uptrend which should keep traders more aggressive, trading with the trend. Any price correction may be limited.	2)	Cattle futures may have increased too far, too fast, and may have a price retracement at some point.
3)	Higher cash hogs to begin the week is a good sign, indicating weekend demand was good and export demand may be improving.	3)	Hog futures are struggling to find support and may have limited upside price potential in the near term.
4)	Hog futures may consolidate for a period before moving higher. Futures have corrected from being overbought, which may increase the buying interest from traders.	4)	The strength of cutouts remains inconsistent, which fails to provide solid buying interest in the market. Overall demand is not improving very much.

**

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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