DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $264.17 +$0.05*

Hogs: Higher Futures: Higher Lean Equiv: $109.55 +$2.27**

*Based on the formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. The 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.

GENRAL COMMENTS:

Cattle futures began Tuesday reflecting the numbers on the Cattle on Feed report with a slightly higher open. That changed dramatically when a story was released that the New World screwworm was detected in the U.S. Futures plunged on the news, which turned out to be false. Futures recovered much of what was lost but still closed lower. This is the risk that the market faces with prices at near record levels and fund traders being record long in feeder cattle futures and extremely long in live cattle futures. Liquidation can be brutal if something triggers it. Expanded trading limits will be implemented June 2, which can magnify these moves. Boxed beef prices were mixed with choice up $0.30 and select down $0.49.

Hogs did come under some pressure in sympathy with the decline in cattle, but recovered to close higher. The recent weakness of futures may have run its course, with traders apt to buy into the market for the long term. Cash trading activity was light, resulting in no price change reported on the National Direct Afternoon report. Pork cutouts were higher, posting a gain of $2.27, and may indicate pork movement over the holiday was good. Packers are expected to be aggressive Wednesday, purchasing hogs to fulfill slaughter and to make up for reduced slaughter due to the holiday.

	BULL SIDE		BEAR SIDE
1)	Cash is expected to be steady to higher this week as demand has not faltered at these higher prices. The feedlots may hold out for higher prices, as that has worked well.	1)	The volatility in cattle futures Tuesday was a wake-up call to traders that any shift in fundamentals or an unexpected event can have a huge negative impact on the market. Traders may trim some of their long positions.
2)	The news on Tuesday of the discovery of the New World screwworm in the U.S. was a rumor. Traders may turn focus back to the supportive Cattle on Feed report.	2)	Beef demand may slow somewhat as temperatures increase and high beef prices impact consumers.
3)	Hog futures closed higher, possibly indicating the recent weakness may have run its course.	3)	The August, October, and December hog contracts have chart gaps below the market that may be filled.
4)	Demand for pork should improve as the summer progresses. High beef prices may shift some demand to pork.	4)	Pork cutouts have yet to establish solid support. Demand needs to improve, or the price will have limited upside potential.

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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