DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $225.22 -$2.77*

Hogs: Lower Futures: Lower Lean Equiv: $114.52 -$0.01**

* 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:

Just when we thought livestock markets were finally finding some support this week, the bottom fell out again. Traders were disappointed there was very little activity in cash cattle trade, leaving them wondering if the higher cash earlier this week will hold or possibly increase. The continued decline of boxed beef also provides some negative influence on the market. Boxed beef is falling with a vengeance as choice cuts were down $3.70 and select cuts down $4.34. Packers may pay higher this week to purchase the cattle they need, but that may come to an end if supply is beginning to back up in the market. Export sales will provide some indication whether international demand continues to remain strong and may set the tone for trading Thursday. On the other hand, futures trading activity may be somewhat subdued due to the Cattle on Feed report that will be released Friday afternoon. The Senate Ag Committee began a hearing Wednesday into the meatpacking industry due to imbalance that has been seen in the market between cash cattle and boxed beef prices.

Even though hog prices have declined substantially over a recent period of time, they are not finished eroding. Cash fell $5.26 on the National Direct Afternoon report. Even though cutouts declined only a penny Wednesday, the sting of Tuesday's huge decline carried over into Wednesday's trading. There may be some follow-though selling earlier in the trading period as some traders may want to get out of the way of the weakness. Weekly exports sales will need to be exceptional to change the tide of the current market and sales to China will be an important part of the report. However, the market may find some stability as it looks forward to the Hogs and Pigs report Thursday afternoon. Average estimates are for All Hogs and Pigs at 97.7%, Kept for Breeding at 98.9%, and Kept for Market at 97.6%.

	BULL SIDE		BEAR SIDE
1)	Cattle are expected to trade higher for the week as indicated by earlier activity. This should provide some stability.	1)	Even with lower grain prices Wednesday, cattle futures just could not generate sufficient buying interest to move the market higher.
2)	Beef exports from Argentina are being re-established, but only at a rate of 50% of the level of their exports last year. This should keep more business coming to the U.S.	2)	Boxed beef continues to freefall, which will eventually affect cash cattle prices.
3)	July hog futures are running at a large discount to cash. If cash shows some signs of stability, futures will rebound.	3)	July hog futures are anticipating a substantial decline of cash over the next 3 weeks as traders anticipate further weakness.
4)	There are numerous price gaps in the charts substantially above the current market that need to be filled. Plus, the market is oversold and in need of a correction.	4)	China will need to be a significant buyer on the weekly exports sales report or it could support the long running idea that their internal pork supplies are growing.

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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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