DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $239.40 -0.19*

Hogs: Higher Futures: Higher Lean Equiv: $133.32 +0.26**

* 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:

Traders just do not seem to believe there is much or will be much upside for cattle prices. Cash has not changed much over the past few weeks and now that the seasonal peak of demand generally takes place around Memorial Day, packers may not be willing, or need to be, aggressive. Packers already have cattle committed ahead, which continues to leave them in the driver's seat. Live cattle futures tried to trend higher for a week or so, but the gains have nearly been eliminated. The June contract holds a discount to cash in anticipation of yet weaker cash during the month of June. However, it is a futures market and will change according to what takes place in the cash market. With packers' margins very good and demand very strong, one has to wonder if weakness of boxed beef will even have much of a bearish impact on cash. Packers are in a sweet spot, and if they can continue to purchase cash at current prices, why rock that boat even if there is weakness of boxed beef due to slower demand. If there is one thing we have seen in numerous markets over the past year, is that many of the technical and seasonal aspects of the market have been thrown out of the window.

Hog futures did not want to pause the day before a holiday weekend. New highs were posted in June through October contracts on Friday with July nearly reaching $120. Continued strong demand and the anticipation of tightening supply continues to underpin the market. Packers backed off a bit on Friday with the National Direct Afternoon report showing price down $1.89, but that did not make any difference to trader perception of the market. It was a good week for futures with June posting a gain of $3.03 and July increasing $2.80. Even though the strike at the Olymel's Quebec plant has been bringing more hogs to the U.S., it has not really made any difference in the minds of traders. There was a cyberattack on JBS, the world's largest meat packing company in Australia and North America over the weekend. The attack shut down operations in some Australian states and they have indicated no specific time frame plants will be shut down. Information has not yet been released as to how many plants in the U.S. and Canada will able to operate. It is unclear how this may affect the futures market.

	BULL SIDE		BEAR SIDE
1)	Cash cattle have been no worse than steady for a few weeks, which may indicate packers are comfortable at current prices as they continue to purchase needed supply without difficulty. Cash may not move lower anytime soon.	1)	Live cattle futures last week have nearly eliminated the gains of the previous week, leaving the market struggling to find support.
2)	Demand for beef seasonally slows after Memorial Day, but this may not be the case this year as consumers seem to be making up for last year with gatherings and restaurant traffic.	2)	Seasonally, demand slows after Memorial Day. If boxed beef prices decline, it could have a bearish impact on cash.
3)	New highs continue to be posted in hog futures, pushing June hogs above June cattle. This is not seen very often and is a testament to market strength.	3)	The court's decision to reduce chain speed at pork processing facilities has not yet had an impact, but it may begin the turning of trader psychology leaving them less apt to be aggressive in the market.
4)	Strong pork demand generally continues through the next month or so and packers need to purchase more hogs to meet demand due to lighter weights.	4)	Packers may be less aggressive as they await the results of demand over the holiday weekend.

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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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