DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $236.69 +0.64*

Hogs: Steady Futures: Higher Lean Equiv: $127.55 +1.63**

* 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:

All in all, the livestock complex performed very well last week with futures up nicely from the previous week. Friday's strength was even in the face of the Cattle on Feed report. It seems as if traders really did not care much about it as an accurate comparison could not be made to the previous year due to the impact of COVID-19. Two things were going to take place once the numbers were released. One is to compare the actual with the estimate, which is always done and has an impact on traders. The average trade estimate for on feed was 103.7% with the actual released at 104.7% and will be viewed by the trade as bearish. Then there was the estimate for placements at 120.8% with the actual at 127.2%, which the trade will view as bearish. The average estimate for marketings was 133.6% with the actual at 132.6% and will be viewed as bearish. Remember, I indicated traders react to how numbers fall in comparison to the estimates. The second comparison will be made in correlation to 2019 as we might as well throw out 2020. A comparison to 2019 actually shows a more bullish Cattle on Feed report. There were fewer cattle on feed and with more cattle marketed. This may leave traders in a quandary Monday possibly leaving them to focus on the cash market and grain prices. Packers may need to be more aggressive this week due to minimal purchases the past two weeks.

Hogs put in a banner week last week with strong price gains in all contracts with July, August and October closing at new contract highs. This is a testament to traders willing to buy the break as the long-term outlook is favorable. Even though cash did not perform sufficiently to support the rally in futures, strong cutouts were more of the driving force. Packers are not aggressively bidding for hogs due to the addition of supply coming in from Canada. However, consumer demand is strong with demand expected to remain that way for possibly another month or so. With some contracts closing at new highs Friday, futures may follow through Monday as the trend has turned higher.

	BULL SIDE		BEAR SIDE
1)	Gains in futures last week may indicate traders are more confident buying into the market as cash has not declined further.	1)	The numbers and the Cattle on Feed report were bearish compared to the average trade estimate. Many times, traders will trade the actuals in relation to the estimates as trading begins.
2)	If traders compare the Cattle on Feed report to 2019, it is a friendly report that may bring more buyers into the futures market.	2)	There is concern packers will not need to be aggressive with purchases this week and will again only bid steady at best.
3)	July, August and October lean hog contracts closed at new highs, indicating the break was only a price correction and higher prices are yet to come.	3)	Continued weakness of cash is a concern for the time being as some hogs from Canada continue to be available. As long as the current slaughter is being met, packers may not get too excited.
4)	Strong cutouts should continue to provide support even though cash has been struggling. Demand for pork remain strong and needs to be satisfied.	4)	Cutouts reaching a new high for the year may be near a level of consumer resistance. Any weakness of cutouts that lasts for more than a day or two could indicate the rally might be over.

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For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CDT. 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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