DTN Early Word Opening Livestock

Cattle: Steady       Futures: Mixed   Live Equiv: $137.30 +0.26* 
Hogs:   $1 Higher    Futures: Mixed   Lean Equiv: $ 83.38 +1.92**
 
*   based on formula estimating live cattle equivalent of gross packer revenue 
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Cash cattle trade is likely to remain subdued after light-to-moderate trade trickled into the complex late last week. The underlying tone of the market remains firm as limited optimism is expected through the end of July. Cash market activity is likely to be limited to showlist distribution and inventory taking with both sides unlikely to be in a hurry to ink deals early in the week. This could delay bids and asking prices until midweek or later. Futures trade is expected mixed to firm in a narrow trading range. Friday's focus was based on the late afternoon cattle on feed and cattle inventory reports. Both of these reports showed limited surprises with reports coming in incredibly close to pre-report expectations. Even though total on feed numbers increased 2% from year-ago levels, cattle placed in feed yards fell 2%. Traders are expected to quickly move beyond this report, focusing on underlying technical support developing in the entire livestock and cattle complex as well as emphasis on building demand through the second half of the year.

Strong underlying support is developing in lean hog futures with nearby contracts posting aggressive gains of $9 to $11 per cwt over the last month. The technical shift in the complex has quickly developed, which is sparking underlying long-term support to move back into the complex through the month of July. Even though underlying fundamental demand remains uncertain given the lack of direction in trade developments and concerns that China tensions will continue long term, traders are looking for additional support over the near future. Even though the tone of the market is turning bullish, the market is ripe for a market correction as traders try to adjust positions following the aggressive and generally unchecked market rally. This could curb recent triple-digit gains early in the week as traders focus more on squaring positions than long-term direction. Cash trade is called steady to $1 higher Monday morning with most bids steady. Expected slaughter Monday is at 475,000 head.

	BULL SIDE		BEAR SIDE
1)	Total cattle inventory as of July 1st statistically unchanged from year-ago levels. The focus is moving away from beef herd expansion through the last year, which is expected to limit overall cattle supply levels.	1)	Cattle on feed numbers increased 2% from year-ago levels. Even though this increase was expected, the focus on growing supply levels of cattle in feed yards continues to spark increased uncertainty through the entire complex.
2)	Firm underlying support late last week in live cattle and feeder cattle is expected to stimulate additional early-week buyer interest, further expanding recent gains in nearby contracts.	2)	Beef values have had a hard time finding underlying support through the month of July. This could quickly curb recent support through the cattle complex as traders focus on demand stability while beef supplies remain strong.
3)	Sharp triple-digit gains has quickly sparked renewed commercial and noncommercial buyer support through the complex. This has moved nearby contracts to month-long highs with expectations of follow-through buying developing over the next few trading sessions.	3)	The recent market rally in lean hog futures trade is leaving the entire complex vulnerable for a moderate-to-strong market correction. October lean hog futures have rallied nearly $11 per cwt in the last two weeks, creating concern about wide market shifts as traders square positions.
4)	Strong gains have quickly moved into pork cutout values. This is helping to spark increased underlying support through the entire complex as traders focus on increased potential buyer support through the near future.	4)	Continued uncertainty surrounding global pork trade continues as the situation with China remains uncertain and is likely to drag on for an extended period. This may cool bullish market undertones seen in lean hog trade through the last month.

Rick Kment can be reached at rick.kment@dtn.com

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