DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $215.03 +0.49*

Hogs: Steady Futures: Mixed Lean Equiv: $115.29 -4.27**

* 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:

Even though live cattle could not continue the strength of Monday, the market was supported by a strong increase in boxed beef select cuts of $2.62. It has been quite some time since any strength of this magnitude has been seen. Unfortunately, it was offset to see degree by choice cuts declining $1.47. This may provide some light at the end of the tunnel. Cash will need to trade no less than steady with last week to provide some further support. Cash cattle have not yet traded for the week, giving no indication of direction. There is continued liquidation of cattle from drought areas and the high prices for feed. This keeps the slaughter market supplied as producers are willing to move those cattle no matter what the current price. Some cash trade should develop Wednesday, providing some indication of cash for the week.

Hogs struggled Tuesday but were able to close off the lows. The inability of cash and cutouts to support the market, increases the concern over the ability of futures to hold recent gains. Traders are assessing current fundamentals with the longer-term outlook. Cash will need to turn quickly, or a larger price retracement may be seen in futures. The National Direct Afternoon report showed price down $0.75. The real concern stems from the weakness of cutouts as they fell $4.27 Tuesday. The supply of hogs for slaughter generally increases at this time of year, which would keep packers supplied without them having to be aggressive. However, this year may be different as supply may not be as high as usual. Although that may be offset by a slower slaughter pace.

	BULL SIDE		BEAR SIDE
1)	Cattle were able to hold the strong gains of Monday, which may give traders more confidence to buy into the market.	1)	Cash is not expected to increase this week as cattle are readily available to the market. Packers have not seen sufficient reason to become more aggressive.
2)	Some strength was seen in boxed beef, which may indicate prices may have fallen enough in relationship with demand allowing prices to stabilize.	2)	The cattle market has been in a long liquidation phase as seen on the weekly Commitment of Traders reports. There is no indication that phase is finished.
3)	The bullish outlook for hogs has not yet changed with tighter supplies expected through the end of the year and into next year.	3)	The rally of hog futures has not been supported by cash or cutouts, making the move mostly supported by anticipation.
4)	A price retracement is usual after a large price increase as it relieves an overbought market. That has now been accomplished.	4)	There is a large price gap in the charts about $5.00 below the current market. Cash and cutouts will need to turn quickly, or further losses could unfold.

**

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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