DTN Early Word Livestock Comments

Cattle: Steady. Futures: Mixed. Live Equiv: $194.42 -$0.44*

Hogs: Higher. Futures: Higher. Lean Equiv: $115.62 -$4.08**

*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:

Traders did not know which way to go with live cattle. No cash business was done with no bids or offers placed. There was little expectation for any business Tuesday, but there should be some cash activity Wednesday. Feedlots may have a tough time holding out much longer due to increasing grain prices. They may be happy with steady bids given the current market situation. If packers see there is a desire to move cattle, they may pull back on bids. Boxed beef continues to erode with choice down $0.83 and select down $1.89. Boxed beef has been declining over the past few weeks nearly on a daily basis as consumers may be shifting to lesser cuts of beef. Slaughter pace is holding well and in line with a year ago.

Hog futures finally finished the liquidation phase with buyers willing to step back in. Fundamentals have not changed over the past week with tightening supplies in the country. That prompted cash to jump $5.11 on the National Direct Afternoon report. Packers are looking for hogs and need to pay higher to obtain them. The problem is that cutouts fell $4.08 offsetting some of the support from strong cash. However, traders did not seem to care and pushed futures as much as $3.35 higher in the June contract. In fact, May through October closed over $3.00 higher. Higher cash is expected again Wednesday.

	BULL SIDE		BEAR SIDE
1)	Cattle futures liquidation may have run its course with the market poised to move higher if cash is traded no worse than steady this week.	1)	Boxed beef prices remain unable to find a bottom. This may result in packers pulling back on bids for cattle.
2)	Supplies of cattle are expected to tighten as the year progresses. With high feed prices, replacements might decline while eventually tightening the supply further over time.	2)	Increasing feed prices may cause feedlots to move cattle even at lower prices rather than holding out for higher cash, resulting in the loss of profitability.
3)	Hog futures did an about face once the liquidation subsided. Trader were eager to get back into the market for the long term.	3)	Hog futures may have a difficult time resuming the uptrend after the large price correction. Futures may have moved too far, too fast with prices now near where they should be.
4)	Strong cash indicates packers may be having some difficulty finding market ready hogs. This may be the reason slaughter pace is not back up to where it should be compared to a year ago.	4)	Futures need to follow through Wednesday or the market could retest the low of Tuesday, which might indicated the rally was mainly due to short covering.

**

For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CST. 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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