DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $224.59 +$0.16*

Hogs: Higher Futures: Mixed Lean Equiv: $120.38 -0.09**

* based on formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. 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 have a lot of head wind to move against to begin the week. Traders will have no bids or offers in the cash market to provide any direction. The failed action of futures on Friday also may keep a negative tone in the market. What looked like strong follow-through from Thursday, ran out of buyer interest and fell back. There was nothing to go on in the cash market as business had mostly been accomplished for the week. Boxed beef prices moved substantially higher, but that did not translate to cash prices. I hate to say it, but much of the same may be in store for this week. You can be assured packers are not going to look at higher boxed beef prices and strong demand and decide to bid significantly higher this week just to be nice. They have some cattle purchased ahead and will see no need to throw out bids early. This week will test the resolve of feedlots. However, lower grain futures may relieve some pressure.

Hog have had a lot going for them with higher cash and cutouts keeping futures making new highs prior to Friday. However, the weakness of futures in closer months may have been in response to decline in the cash price. Another factor may have been an overbought market and the desire of traders to take a profit going into the weekend. The pattern has been that any retracement of futures has been a buying opportunity. Tightening hog supplies should bring packers back into the market aggressively as it is becoming more difficult to find market-ready hogs. Just how deep the weakness of Friday will continue is anyone's guess. The concern is the price gaps below the market in the June, July and August contracts.

	BULL SIDE		BEAR SIDE
1)	Packers may be willing to purchase cattle at steady money this week as the liquidation phase of feedlots might have run its course.	1)	Cattle futures could not hold the highs Friday, possibly indicating it was only a short-covering rally before the weekend and nothing more. Once buying was accomplished, the markets had nothing more to support them.
2)	Live cattle futures seem to have broken out of the sideways trading range they had been in for about two weeks. Higher futures could provide optimism for steady to higher cash this week.	2)	Cash does not look too promising this week due to packers not needing to be aggressive and able to afford to wait and see if cattle will be offered aggressively.
3)	August and later hog futures made new contract highs again Friday, keeping the uptrend intact despite the weakness of closer months.	3)	Chart price gaps in the June, July and August hog contracts at lower levels will remain formidable until closed.
4)	Cash weakness Friday is expected to be short-lived as packers should be aggressive early, looking for market-ready hogs.	4)	The significant decline in the National Direct Hog report Friday could be a foreshadow of what is to come in the near term. Traders may be apt to bank some profits until they see stronger cash.

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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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