DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $266.78 +$0.94*

Hogs: Higher Futures: Mixed Lean Equiv: $124.22 -$0.57**

*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 continue to reach for the sky with no indication of a price ceiling. The recent reports added further support to the market, with the only aspect left in the market that could impact the uptrend being a slowdown in demand. That had been anticipated much earlier, but has not happened. Boxed beef prices have declined over the recent weeks, but that has been attributed to the impact of lower consumption due to increasing temperatures and not high prices. The packers have been unable to hold onto better margins that had developed recently and are back to where those margins had been. The packers had to increase bids to obtain the cattle needed for slaughter, even though they had purchased cattle ahead and boxed beef prices declined. Boxed beef on Monday was higher, with choice up $1.06 and select up $1.98. Feeder cattle remain in strong demand with prices at auctions continuing to rise.

Hog futures held in the range with little reason for traders to be excited over market direction. Cash was higher, which was unusual as packers usually wait to see weekend demand before becoming aggressive. However, there is a general volume of hogs needed each week, and the sharp decline of cash on Friday made it attractive for packers to step up more aggressively to begin the week. The National Daily Direct Afternoon Hog report showed cash up $1.08. Pork cutouts declined $0.57. Traders are holding a substantial discount in the October and later contracts, anticipating a seasonal decline. This discount may be reduced if beef prices increase further as more demand may shift to pork.

	BULL SIDE		BEAR SIDE
1)	The uptrend continues in cattle, keeping traders confident, holding and adding to long positions.	1)	Cattle futures are overbought and could see some liquidation if traders become nervous over these high prices.
2)	Recent reports showed little indication that the beef herd is increasing as the percentage of heifers moving to feedlots remain relatively high.	2)	The strength in cattle futures was less than anticipated due to the bullish reports on Friday. Much of it was already factored in. This may limit further gains.
3)	Hog futures have maintained support, keeping futures in a sideways pattern. This may increase buying interest from traders.	3)	Traders may eventually become bored with the inability of hog futures to move to the upside and may liquidate their long positions.
4)	The price spread between August and October is excessive and may narrow with October increasing after the August contract goes off the board.	4)	Cash hog prices have not been able to break out to find consistent strength. The supply of market-ready hogs remains sufficient.

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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