DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $214.65 +0.27*

Hogs: Lower Futures: Mixed Lean Equiv: $101.18 +1.77**

*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 huge decline in feeder cattle should never have taken place on Monday with Tuesday's recovering what was lost and then some. There was no fundamental reason for the sell-off, but it left some unhappy traders in its wake. However, the livestock complex is probably back to where it should be given current fundamentals. Cash traded Tuesday with packers opening their wallets early. Texas and Nebraska traded some cattle $3 higher than last week. This sets the stage for the week as feedlots will hold out for nothing less, knowing packers need cattle. Boxed beef prices were mixed with choice down $0.20 while select increased $1.74. There is good demand for feeder cattle, which gives all the more reason the debacle in feeder cattle futures was an aberration.

Hogs took it on the chin as traders gave up trying to hold the market higher without support of cash. Packers still do not need to be aggressive as market-ready hogs continue to be available. The National Direct Afternoon report showed cash down $0.05 at a weighted average of $60.98. Cutout gained $1.77 on good movement. Maybe the market has found value here with consumers demand improving. However, traders may not be willing to buy into the market again unless it touches chart support again, which is about $2.00 lower.

	BULL SIDE		BEAR SIDE
1)	Cash began trading early and $3 higher than last week. This shows the willingness of packers to pay more because of strong demand. Feedlots may hold and hope for more.	1)	The huge increase in feeder cattle futures Tuesday mainly negated the loss of the previous day. The overall futures trend is still down.
2)	The rebound Tuesday negated the bearishness of the previous day. Feeder cattle are in demand at higher prices and tighter supplies of market-ready cattle are being seen by packers.	2)	Cash trading Tuesday may have set the level for the week, leaving it difficult for futures to see much more strength. Traders may want to keep futures close in line with cash rather than anticipating further gains.
3)	It will take a substantial price rally to close the chart gaps remaining in hog futures about $7.00 higher, but gaps are generally filled before the close of a contract.	3)	Hog futures moved higher last week without the support of cash. That finally was stretched too far, causing selling to erupt as traders exited long positions.
4)	Demand is increasing as there are a significant number of hogs purchased with strong movement of pork cutouts.	4)	Hog numbers remain heavy leaving packers with plentiful supplies to satisfy slaughter needs. This leaves them comfortable and unwilling to pay more.

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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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