DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $267.89 +$2.97*

Hogs: Higher Futures: Higher Lean Equiv: $124.07 +$0.33**

*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:

We can say with certainty that the cattle market is resilient. Cattle futures have regained the losses of last week, with the August contracts achieving new highs. The cash markets have been holding, requiring the August contracts to move closer in line with the cash market. Consumer demand does not seem to be slowing. Boxed beef prices did see pressure over the past few weeks, but the surge in boxed beef Tuesday indicates retailers continue to move beef. Choice boxed beef jumped $4.15, with select up $4.35. The strength of futures provides the confidence the feedlots need to hold for higher prices again this week. Strong demand will require packers to purchase cattle, even if it means at higher prices. They cannot afford to hold back. Reducing slaughter has not backed up cattle in the country or improved their margins.

Hogs continued their upward momentum, breaking above technical resistance and triggering further short-covering. The on-again and off-again pork demand has found support over the past five days. Packers were aggressive buyers Tuesday as they needed to step up to procure hogs earlier in the week rather than later. There was no change listed for cash prices, as there was no price change recorded Monday. However, the weighted average price was $113.52 and was higher than Monday. Pork cutout values increased $0.33. Packers may pay higher prices Wednesday, but they may not be quite as aggressive.

	BULL SIDE		BEAR SIDE
1)	Cattle futures have recouped their losses, with some contracts posting new highs, keeping traders bullish and confident that prices will continue to increase further.	1)	The surge in boxed beef Tuesday may be short-lived. High beef prices may reduce demand.
2)	The surge in boxed beef prices Tuesday indicates demand is strong as retailers need beef to meet that demand.	2)	Cattle futures remain overbought, as the recent decline was insufficient to alleviate that condition.
3)	Packers were aggressive in the cash market Tuesday as they needed hogs to satisfy demand. They should bid higher Wednesday to purchase what they need earlier rather than later in the week.	3)	The February hog contract has a chart gap of about $2.50 below the market that may be filled at some point.
4)	Hog futures pushed above resistance as further short-covering took place. Traders may gain confidence to add long positions due to the discounts in the market.	4)	Short-covering may have run its course as futures have been higher over the past five consecutive days.

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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