DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $209.74 -1.56*

Hogs: Higher Futures: Mixed Lean Equiv: $121.85 -0.54**

* 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 really did not do much last week as far as price movement was concerned. There was volatility, but nothing much to show for it in the end. Cash cattle trade was light for the week, which makes one wonder just how the holiday-shortened week will develop. Packers were not aggressive into the holiday, but they now need to look ahead to expected future demand. They may not want to be as aggressive due to falling boxed beef prices but will still need to purchase cattle. The argument can be made for potential cash trade Tuesday as the holiday is behind and business needs to ramp back up. It is also possible feedlots will want to move cattle more aggressively this week. Cash did not provide the strength they wanted last week, but it is expensive to feed and hold. Boxed beef price fell on Friday with choice cuts down $2.21 and select cuts down $2.52. For the week, choice cuts declined $21.84 with select cuts down $8.81. The Commitment of Traders report showed funds reducing their long futures positions by 4,120 contracts to a net-long position of 114,064 futures contracts.

Hog futures tried to rally last week, but only the July contract was able to post a sold gain and hold it. The reason is that July has only about a week remaining to trade and it need to converge and remain close to cash, and that is where it is. The National Direct Afternoon report declined $1.18, moving the weighted average price to $108.21. July futures closed at $108.65. Cutouts declined $0.44, squeezing packer margins further. But packers will still need to purchase hogs to meet strong demand. Traders may be cautious to begin the week as they may wait and see how the cash market will develop before they become more active. The Commitment of Traders report showed funds reducing their long futures positions by 7,353 contracts reducing their net-long futures positions to 108,582 contracts.

	BULL SIDE		BEAR SIDE
1)	Cash castle trading activity has been light the past two weeks, which should turn packers more aggressive this week as they need to replenish supply.	1)	Cattle were unable to break out of the sideways pattern that has developed over the past two and a half weeks. This may keep technical traders complacent.
2)	Cattle futures were able to hold support last week, which could provide the confidence to traders that a bottom has been established.	2)	Cash may have a difficult time moving higher as boxed beef continues to fall.
3)	Packers have not been aggressively purchasing hogs due in part because of the holiday weekend and in part because of tighter numbers. This may change this week as they step back into the cash market.	3)	August and later hog futures tried to rally last week, but just could not find the needed support from cash and cutouts.
4)	Hog weights are decreasing requiring more animals to make up the difference. Packers may need to scour the country to find market-ready hogs.	4)	China's purchases of U.S. pork seem to be slowing, which has been anticipated for a period of time. This could leave more available to the domestic market.

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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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