DTN Early Word Livestock Comments

Cattle: Lower Futures: Lower Live Equiv: $280.17 -$1.40*

Hogs: Lower Futures: Mixed Lean Equiv: $120.07 +$2.09**

*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.

GENERAL COMMENTS:

The cattle markets opened higher on Thursday in response to the news that the U.S./Mexico border is closed for cattle again and the announcement of a 50% tariff on Brazilian imports starting Aug. 1, unless certain demands are met by then. Brazil is the No. 1 exporter of beef to the U.S., and a slowing of beef exports would be bullish for beef prices. However, traders took profits, resulting in early buyers being forced out of the market as stops were triggered. Cattle futures at these lofty levels will show increased volatility based on the news that is released, and higher daily trading limits can enhance this volatility. The frightening thing is that it may not be a matter of if, but a matter of when the New World screwworm will be discovered in the U.S. If it is, the market may experience substantial liquidation. Cash cattle have not traded so far, but lower cash seems likely due to the recent weakness of boxed beef. Boxed beef prices on Thursday showed choice down $1.79 and select down $2.41.

Hog futures tried to hold gains, but the lack of solid fundamental news resulted in lower prices. The July contract is holding close to the index as Monday is the last trading day for the contract. The packers wanted to fill most of their needs for the week, bidding higher for hogs. The National Daily Direct Afternoon Hog Report showed a gain of $0.53. Pork cutouts gained nicely, increasing $2.09. However, the choppiness of cutouts does not provide solid support to the market. Weekly pork exports were weaker, but did not have much impact on the market.

	BULL SIDE		BEAR SIDE
1)	The closing of the border and the potential for increased tariffs on Brazilian beef should provide continued support to the cattle market.	1)	Boxed beef prices have declined significantly over the past two days. This may set the stage for lower cash cattle trade.
2)	New contract highs in cattle futures keep the uptrend intact. This may limit price retracements.	2)	There is growing concern over the Northern spread of the New World screwworm and the possibility of it eventually moving into the U.S.
3)	Hog futures fell back but maintained the recent support that has developed. Traders may buy Thursday's weakness.	3)	The demand for pork seems to be holding rather than increasing. This may limit further upside price potential.
4)	Consumers may increase pork consumption if beef prices continue to increase.	4)	The packers have sufficient market-ready hogs available. They do not need to become aggressive buyers.

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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