DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $199.49 +0.82*

Hogs: Higher Futures: Higher Lean Equiv: $129.75 +0.57**

* 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:

Both live and feeder cattle futures were the beneficiaries of the reports that were released on Friday. Traders did not buy the rumor, sell the fact Monday, but rather bought the fact. The numbers on the reports gave traders confidence that cattle supplies may be tightening over time. The reports and the surge of futures over the past three days may increase the desire of feedlots to hold for higher cash this week. Boxed beef prices have been increasing after seemly finding a bottom for prices with choice cuts up $1.30 and select cuts of $0.98. This may push packers into having to pay up for cattle this week as they need to keep up with demand. The Commitment of Traders report showed funds reducing their long positions by 487 contracts to 54,627 net-long futures positions. Follow-through trading is expected Tuesday, but there may be a limit to the upside until cash activity begins to unfold.

Hogs did not find the same strength as cattle but did manage a higher close in some contracts. As anticipated, packers were a bit more aggressive to begin the week with the National Direct Afternoon report showing an increase of $1.40. Pork cutouts provide some support with prices up $0.57. Unfortunately, only the August contract was able to establish a higher high. However, the trend remains up in all contracts, keeping the bullishness alive and well. The Commitment of Traders report showed funds very active purchasing 7,618 futures contracts, bringing net-long positions to 77,064 contracts.

	BULL SIDE		BEAR SIDE
1)	Packers may need to bid higher in order to procure the necessary cattle this week as feedlot will hold for higher prices.	1)	Cash will need to support the price movement of cattle futures over the past three days or futures could fall back.
2)	Cattle futures moved solidly above the 20- and 40-day moving averages thereby increasing the desire of traders to buy into the market.	2)	Cattle futures could reach some price resistance at current levels. Short-covering rallies generally last three days and this is day four.
3)	Hogs were able to hold and maintain the upward price trend with August setting a higher high.	3)	Hogs were able to close slightly higher, but not without a fight Monday.
4)	Packers are expected to be aggressive again Tuesday following the pattern of the last few weeks. They need to gain ownership of sooner rather than later.	4)	China is a wild card and with two weeks of net export cancellations, a third would not be supportive to the market. The market might be a bit cautious prior to Thursday.

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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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