DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $221.68 -1.40*

Hogs: Lower Futures: Mixed Lean Equiv: $119.22 -0.47**

* 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:

Live cattle futures were able to close slightly higher as traders were cautious ahead of the Cattle on Feed report. It had been a back and forth week beginning with a large price increase at the beginning due to the jump in cash. However, there rest of the week showed limited cash business being done through the close of futures trading Friday. Feedlots seemed to be waiting for the Cattle on Feed report to see if they have foundation to build on. Packers were waiting for the report to see how aggressive they need to be to procure needed supply. Packers appear to be well-supplied with cattle for the next few weeks, but they will need to continue to purchase ahead. The Cattle on Feed report was slightly friendly relative to trade estimates. The number of cattle on feed came in at 100% with the trade estimate at 100.6%. Placements were at 93% compared to trade estimates of 95.1%. Marketings were 123% compared to the estimates of 123.5%. It is difficult to assess just how this all compares due to the disruptions of the industry a year ago, but the main focus of the trade will be how the actuals fell in relationship to the estimates. Boxed beef was mixed, but the decline of choice cuts of $2.86 far outweighed the increase of select cuts of $0.04.

Hog futures posted a positive close Friday but had a difficult time holding the highs of the day. Cash on the National Direct Afternoon report showed an increase of $0.70, which had little impact on the market due to the significant decline of $2.95 in the cutouts. It will be difficult for the trade to overcome the large decline of futures last week as July hogs fell $6.72 while August hogs fell $6.90. Price charts are very ugly, but in the wake of the fall, price gaps were left at levels quite a bit higher than the current market. These gaps will likely be filled, but it will take a monumental effort to accomplish the task. The Hogs and Pigs report is history and already digested. The market will move forward on cash and fundamentals.

	BULL SIDE		BEAR SIDE
1)	The Cattle on Feed report was slightly friendly to the market, which may provide some support to futures.	1)	July 4th is nearly here, and demand may slow after the holiday. That coupled with slower exports could back up supply.
2)	The fact that there was limited trading through the end of the week would suggest packers may need to be more aggressive this week and may bid higher.	2)	Boxed beef continues to decline, which will have an impact on the willingness of packers to maintain higher bids.
3)	Hog futures are severely oversold and ripe for a bounce.	3)	The bounce Friday may be just that. Futures may not have found a bottom.
4)	Lower cutouts should stimulate demand and an increase in demand will require packers to increase ownership of hogs in a market that is seeing tighter supply.	4)	The weakness of cutouts is not providing much support. Packers were aggressive buyers Friday, leaving them with the ability to wait and see what the early indication of demand will be this week.

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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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