DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $202.26 -$1.20*

Hogs: Steady Futures: Higher Lean Equiv: $125.54 +$1.08**

* 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:

The livestock complex put in a positive day Tuesday. Live cattle futures were able to erase much of the losses of the previous four trading sessions, moving contracts back into the consolidation range they had been in for about three weeks. The cash had some activity already this week with a number of cattle sold in the North at steady money with last week. This may have set the stage for the week. The rebound of futures may require packers to think about what they need to bid in order to accomplish further business. However, the continued weakness of boxed beef points to the possibility of no better than steady bids as the week progresses. The decline of boxed beef has been steep and with choice cuts down $1.66 and select cuts down $2.03, the weakness continued. Packers will still need to purchase cattle, but they may not need to be as aggressive this week due to the amount of cattle already purchased ahead.

Hog futures have had an impressive week so far with futures in August and October closing at the highest prices since mid-June. However, with the exuberant buying, both contracts have left price gaps in their wake. There are two gaps in August -- one left Tuesday at $104.37 and one from Monday at $101.97. October left a price gap at $85.70. The jump in the National Direct Afternoon report of $4.56 indicated packers wanted to gain ownership of hogs and were not shy about bidding up to get them. Cutouts increased $1.08, also providing support. Some of the recent strength of futures may be attributed to the positive export sales report Friday due to China being the largest buyer. This rally may be extended if they are listed again on the report Thursday.

	BULL SIDE		BEAR SIDE
1)	The rebound of live cattle futures Tuesday may have turned the recent bearish trend of the market.	1)	The strong rebound of cattle futures moved prices back up into the previous consolidation range. If cash cattle trade no better than steady this week, it may be difficult for futures to move higher.
2)	Early trading of cash cattle at steady money may provide the confidence that cash will be no less than steady with last week.	2)	Lower boxed beef prices will be a drag on price potential as packers see profits dwindling.
3)	Hog futures have made an impressive rebound this week, indicating traders are bullish on the market and want to buy due to the discount to cash.	3)	The chart gaps in hog futures below the market may be filled sooner rather than later.
4)	July will go off the board Thursday, making August the spot month, which will have quite a bit of discount to cash that will need to be made up if prices hold.	4)	Packers bought hogs aggressively Tuesday, which may leave them less aggressive the rest of the 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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