DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $229.81 -1.85*

Hogs: Steady Futures: Mixed Lean Equiv: $112.63 -0.60**

* 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:

Cattle are having a difficult time finding solid support. There was quite a bit of volatility last week, but the end result was limited change since the close of previous week. The market has seen extreme pressure since the last Cattle on Feed report, which was termed as bullish. This week there will be another Cattle of Feed report on Friday. The days leading up to this report will be interesting. Of course, what might be more interesting is how early this week cash cattle trading may take place. The past few weeks have seen limited activity with last week closing with both packers and feedlots holding out. Packers are watching the weakness of futures and boxed beef being unwilling to pay more for cattle. Feedlots are hoping futures will rebound and packers will need to step up to purchase cattle at their asking prices in order to satisfy demand. Boxed beef prices were lower on Friday with choice cuts down $4.53 and select cuts down $0.52.

Hog futures were able to hold on Friday even though cash and cutouts declined. Traders are trying to anticipate at what level futures and cash will converge. The step discount being held in the October contract keeps trader caution high. Futures rebounding during the week gives the impression that a low has been set, providing more confidence for traders to buy into the market for the long term. Cash has not been very supportive to the market. Cutouts closed with a loss of $0.56 after being solidly higher in the morning cutout report. Traders may not be aggressive buyers early Monday but will wait for further fundamental direction.

	BULL SIDE		BEAR SIDE
1)	Limited cash trading activity took place last week, which may result in early cash activity this week. Packers may need to be a little more aggressive this week.	1)	Cattle have not been able to hold the gains earlier last week with the potential for futures to retest the lows.
2)	Futures remain oversold and in need of a larger retracement. The upcoming Cattle on Feed report may trigger it.	2)	Packers seem to be unwilling to pay higher prices and are waiting it out. Falling boxed beef indicates reduced demand.
3)	Hogs retain a large discount to cash, which needs to be eliminated one way or the other over the next four weeks. The expectation is for futures to move higher to close the gap.	3)	The rebound of hog futures during the second half of the week was not supported by cash and cutouts.
4)	Traders may gain more confidence to establish long positions after futures rebounded from the lows last week.	4)	The expectation for tighter hog supplies has not yet come to fruition. Packers are able to obtain sufficient numbers to meet demand.

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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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