DTN Early Word Livestock Comments

Cattle: Steady Futures: Lower Live Equiv: $275.10 -$1.18*

Hogs: Higher Futures: Mixed Lean Equiv: $119.81 +$0.38**

*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:

Cattle futures took it on the chin Monday, but it has not done any technical damage to the charts. Traders reacted to the substantial decline in boxed beef prices Friday. There were further losses Monday with choice down $1.57 and select down $1.91. This weakness raises concerns of a peak in beef demand for the time being. Cash cattle traded significantly higher last week, but that may change as packers need to maintain their margins and may not be interested in writing large checks for cattle this week. The weakness Monday increased the discount of futures to cash. The question now is whether futures are leading lower or if it is just a matter of correcting an overbought market.

Hog futures remained negative Monday. After a brief few days of consolidation last week, futures have resumed their downtrend. Traders are concerned about the seeming lack of demand for pork. There has been speculation that consumers would increase their consumption due to high beef prices, but that has not materialized. Pork cutouts have not been able to post consistent gains. Cutouts were higher Monday, with a gain of $0.38, but traders need to see more consistent gains to reverse the negativity. The National Daily Direct Afternoon Hog report showed cash higher, gaining $2.89. Packers did not purchase a lot of hogs Monday, which may keep them aggressive Tuesday.

	BULL SIDE		BEAR SIDE
1)	The weakness of cattle futures Monday may be a temporary price correction as the uptrend remains intact.	1)	The negative trading activity after the jump in cash cattle last week may be a precursor to further weakness, as the summer slump might impact demand.
	There is a substantial discount to cash, which will not be maintained. If cash cattle trade no worse than steady this week, futures may regain the losses and then some to reduce the discount.	2)	Packers were able to purchase cattle for deferred delivery last week, which may leave them less aggressive this week.
3)	Tuesday is the last trading day for July hogs. The August contract will take over as the lead month and is carrying a discount to the July contract. This may increase the incentive for traders to buy futures.	3)	The downtrend in hogs has intensified and may trigger further selling as the funds liquidate positions.
4)	Packers should remain aggressive with their hog purchases Tuesday, as they need to purchase for the week and would like to do it earlier rather than later.	4)	Pork cutouts need to find solid support to provide a reason for traders to buy back into the market. Otherwise, weakness may continue.

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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