DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $204.50 +$1.09*

Hogs: Steady Futures: Mixed Lean Equiv: $88.13 -$6.77**

*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:

December live cattle was the only contract which closed higher Friday. There is anticipation for higher cash again this week, but traders may wait to see if it materializes before adding further premium. Last week was a good week with cash for both live and dressed $3.00 higher. One has to wonder just how much longer this strength will continue before prices level out. Packers have been aggressive as they needed to purchase cattle to maintain slaughter levels and satisfy demand. Feedlots have been able to hold for higher prices and will look to do the same this week. Higher boxed beef prices on Friday indicate demand remains strong. Even though prices increased, they were substantially lower for the week with choice losing $6.08 and select down $3.60. Strong packer margins may still allow them to pay higher money to obtain needed cattle.

Hogs continue to be a mystery. Cutouts have been volatile for a few weeks with last week showing cash becoming more volatile. The National Direct Afternoon report Friday showed a gain of $3.93. However, cutouts plummeted $6.72. Cutouts seem to be one day up and the next day down. There are sufficient hogs available for demand, which makes one wonder why packers are being so aggressive. It is possible they want to purchase hogs earlier in the month due to disruption of business that will take place during the holidays? Or is there some concern over the potential for tighter supply that has been talked about for the past few months?

	BULL SIDE		BEAR SIDE
1)	Feedlots will set their sights on higher cash again this week. This should support futures.	1)	February and April live cattle have a chart gap remaining over $2.00 lower than the current market. These will likely be filled at some point.
2)	The trend remains up, providing traders the confidence needed to purchase and hold long positions.	2)	Overall weakness of boxed beef may eventually limit what packers will be willing to spend on the purchase of cattle.
3)	Stronger cash hogs last week may be mirrored this week as packers may be sensing some tightening of market-ready hogs.	3)	Recent cash strength for hogs may been temporary as packers are purchasing ahead for the month. Once they have enough supply to carry through the end of the year, cash may fall back again.
4)	Export sales have been good with China back in the market again. This may keep supplies from backing up in the domestic market.	4)	Hog weights continue to hold, leaving plenty of tonnage available to the market. Lower prices might be needed to keep moving product.

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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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