DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $242.43 -$1.41*

Hogs: Steady Futures: Lower Lean Equiv: $135.40 -$3.86**

* 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 took advantage of substantially lower grain prices to push feeder cattle futures higher Monday. The strength of feeder cattle pulled live cattle higher. That may carry over Tuesday to some extent as grain prices were again lower overnight. Traders were a little more hesitant in live cattle due to no indication yet as to cash prices this week. The country was void of bids or offers as most were likely focused on the substantial drop in grain prices. The trade seems to think cash will be no less than steady but will be cautious due to the apparent top in boxed beef. Choice cuts declined $2.09 with select cuts down $1.80. Feedlots seem to be current with marketings, which may allow them to hold back a bit this week in anticipation of packers needing cattle, which may cause packers to pay no worse than steady cash. The Commitment of Traders report showed funds purchasing 2,740 -- increasing their net long to 52,940 contracts.

July hogs have closed lower the past five trading sessions. This makes one wonder just how deep the market correction will be or whether a top has been reached. There were two significant price corrections previously with one of over $5.00 in early May and one of about $6.00 in early April. Futures then moved to new highs and continued the uptrend after those corrections. July has now declined about $4.00 and seems headed to close the chart gap about $1.50 lower. Tightening hog supplies would suggest this is a price correction before moving higher. However, packers may be less aggressive due to the sharp drop in cutouts of $3.86 Monday. The Commitment of Traders report showed funds as net buyers of 1,989 contracts, increasing their net-long positions to 84,621 contracts.

	BULL SIDE		BEAR SIDE
1)	Lower grain prices gave a boost to cattle futures Monday and the same could take place Tuesday as grain futures were lower overnight.	1)	The current price rally in cattle seems to be driven mostly by lower grain prices. That puts it on somewhat shaky ground as grain prices will remain volatile throughout the growing season.
2)	Futures broke through overhead price resistant with later contracts establishing new contract highs.	2)	Boxed beef prices seem to have topped, which may make it difficult to maintain higher futures prices.
3)	Hog futures have corrected their overbought status and may now get the interest of traders to buy the break.	3)	July hogs may be headed to close the chart gap at $116.85 before traders will be interested in buying the break more aggressively.
4)	Packers did not buy a lot of hogs Monday at lower cash. They may step up Tuesday as they need to keep ahead of strong demand.	4)	Declining cutouts may indicate the market is becoming saturated with pork supply for the time being.

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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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