DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $284.13 +$1.40*

Hogs: Higher Futures: Mixed Lean Equiv: $121.13 -$1.32**

*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 high prices in the cattle market have increased the volatility of the market, as traders are more nervous and quick to buy or sell on a whim. This many times is evidence of a market that has possibly run its course. Traders are torn between strong fundamentals and a potential for substantial declines, as selling pressure can be magnified once liquidation is triggered. The selling pressure on Thursday may have been due to an expected announcement of a timeline for the Mexican border to be reopened for cattle imports. But even if that were to take place, the volume of cattle imported will not have a large influence on the maket. Some packers were quick to reduce bids on the weakness of futures, but cash did not trade Thursday. Only light trading activity on Wednesday has so far surfaced at $4.00 higher in the North. Boxed beef prices were mixed with choice up $3.30 and select down $1.08.

Hog futures could not hold above technical support as pressure increased from the lack of fundamental support. Futures declined back to the lows of the previous trading range after the past three days of weakness. Support will need to hold, or further liquidation could take place. The National Daily Direct Afternoon Hog report showed cash down $0.11. Pork cutout values declined $1.32. Traders became disappointed that pork values have been unable to trend higher. With the August contract now history, the October contract is at a large discount to the current market. However, traders are likely to hold the discount unless the market proves otherwise.

	BULL SIDE		BEAR SIDE
1)	Feedlots can afford to hold for higher cash or carry cattle over to the next week. Light cash trade earlier in the week may have set the stage for cash.	1)	Some packers reduced bids on the weakness of cattle futures on Thursday, but no cattle were traded. Lower futures today could trigger lower cash prices.
2)	Even if there is an announcement of the border reopening, it will have a limited impact on the volume of cattle available to the market.	2)	It is Friday, and traders may be nervous over another selloff ahead of the weekend that could trigger stops and pancake the market lower.
3)	The decline of hog futures might be viewed as a buying opportunity due to the large discount futures hold to cash.	3)	The disappointing fundamentals this week do not bode well for the market Friday. Further selling could take place.
4)	The weekly hog weight remained unchanged for the previous week at 281.1 pounds. This is just 0.1 pounds higher than a year ago.	4)	Traders may take a wait-and-see attitude with the large discount October is holding to cash, which would limit upside potential for the time being.

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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