DTN Early Word Livestock Comments

Cattle: Lower Futures: Lower Live Equiv: $294.97 -$0.65*

Hogs: Lower Futures: Mixed Lean Equiv: $120.13 -$2.22**

*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:

It was a dismal day for cattle futures, as feeder cattle plummeted and were locked in a limit-down position through the close of trading in all contracts throughout the next year. Live cattle suffered substantial losses as well but were not locked limit-down. Expanded trading limits are in place today, with the daily limit for live cattle at $10.75 and $13.75 for feeder cattle. The question is whether the expanded limits will be utilized today, as there will be further liquidation for those who could not exit the market on Tuesday, and the continued negative implications impacting the market. Cattle futures have been oversold for quite some time and needed a price correction. Cash cattle traded lower last week, which impacted the market and indicated that cash may show further weakness. However, the bearishness stemmed from President Trump's comment that he would take action on high beef prices, which was sufficient to trigger the liquidation, despite no specific outline being mentioned as to how that would be accomplished. Boxed beef prices appear to be wavering as choice declined by $2.02 and select increased by $1.62.

Hogs held up well and were not the target of spillover selling, as sometimes occurs. Traders saw limited potential for price protection by selling hog futures as a protective measure when they could not exit their cattle positions. Hog futures were mixed, supported by strong buying interest from packers and higher cash prices. The National Daily Direct Afternoon Hog report was up $2.27. However, pork cutouts declined $2.22, offsetting cash strength. Packers are not expected to be as aggressive today.

	BULL SIDE		BEAR SIDE
1)	The heavy liquidation in cattle futures may be viewed as a buying opportunity as it is uncertain how the implementation of government policies will lower beef prices, as indicated by the President.	1)	Feeder cattle being locked limit-down on Tuesday will likely see further liquidation today as traders will want to exit their positions.
2)	The cattle market was due for a correction of the overbought status of futures. This was needed, and once the market corrects, it should find support.	2)	Cattle futures remain overbought, and further technical selling may keep pressure on the market.
3)	Hog futures held on Tuesday despite the liquidation in the cattle market. The optimism over steady and increased demand continues to support the market.	3)	Hog futures may have difficulty maintaining the current price levels unless there is more consistent support in pork cutouts.
4)	Packers were aggressive buyers of hogs on Tuesday, indicating good demand and the necessity of increasing slaughter.	4)	Packer margins are not very good, which may limit what they will pay for hogs 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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