DTN Early Word Livestock Comments

Cattle: Lower. Futures: Mixed. Live Equiv: $197.84 +$1.49*

Hogs: Steady. Futures: Mixed. Lean Equiv: $114.95 -$2.49**

*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 the cattle complex held well Monday, it will be difficult to shake the overall bearishness of the Cattle of Feed report. Feedlots may have a difficult time prying more cash out of packers, even if they hold out for much of the week. Boxed beef prices were higher with choice up $1.23 and select up $4.18, but even with that, packers have some cattle already forward contracted, and they know that cattle will need to come to the market. Beef production is estimated to decline in the second quarter compared to the first quarter, but the way the market is shaping up, they may not be the case. The trade is not reflecting that due to the discount of June as well as August live cattle futures. The Commitment of Traders report showed funds as net buyers of 1,734 contracts bringing their net long positions to 41,878.

May hogs were the star of the day holding a gain of $1.40. May is kind of an off month with limited trading activity in general. To see this contract holding very strong even through settlement is unusual. Much of the trading for the next two days will be relative to the upcoming Hogs and Pigs report to be released Wednesday. Current futures are pricing in solid demand and tightening supplies moving into June and July. In fact, the June contact is carrying nearly double the usual premium for this time of year, yet new contract highs continue to be made. The National Direct Afternoon Hog report showed a decline of $2.95 with cutouts down $2.49. The Commitment of Traders report showed funds increasing their net long positions by 911 contracts to the current net long positions of 62,424 contracts.

	BULL SIDE		BEAR SIDE
1)	Cattle futures held well despite the bearish report. This could provide traders with the confidence to build some long-term positions in the market.	1)	The large number of placements reported on the Cattle of Feed report will keep plentiful supplies of cattle available to the market over the coming months.
2)	Stronger boxed beef prices indicate continued strong demand that will need to be satisfied.	2)	Cattle futures are having a difficult time gaining traction being unable to break above the sideways trading range.
3)	Hog futures continue to make new contract hogs with no sign of a change in trend. Traders continue to buy into the trend.	3)	Trader may position themselves ahead of the Hogs and Pigs report Wednesday. This could result in some profit taking and a pull back.
4)	Tightening supplies of hogs are being reflected in the market. This will continue to underpin prices for the foreseeable future.	4)	Chart gaps remain under the market and a bearish report could result in a pullback and fill those gaps.

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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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