DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $195.16 +$0.57*

Hogs: Higher Futures: Mixed Lean Equiv: $132.09 +$3.08**

*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:

China has been a large, consistent buyer of beef from the U.S. and the announcement Monday that they were going to ban agricultural imports from Australia and New Zealand rippled through the market. That itself was not the reason for pressure on the market, but it was their weak economic data that went along with the announcement. Their retail sales and production were less than expected, youth unemployment increased, and new home prices fell along with lower refinery output. Although not directly tied to the beef market, it could have an impact. It could result in lower beef exports to China, or it could result in increased exports to the country. This uncertainty rattled the commodity markets. Boxed beef closed slightly higher Monday with choice up $0.14 and select up $0.22. Feedlots will be holding for higher cash again this week. The Commitment of Traders report showed funds as net buyers of 11,068 contracts, bringing their net-long positions to 49,072.

Hogs struggled for a while Monday but found footing, resulting in a higher close. Cutouts were very strong on the morning reports but tempered by the end of the day, closing up $3.08. The opposite was seen in cash with the National Direct Afternoon Hog report showing a loss of $8.08. Packers are trying to work slaughter to their advantage by slowing chain speed to limit the number of hogs they need to purchase. However, reduced slaughter with good demand may only mean higher prices as cutouts will increase. It is all about packer margins. The Commitment of Traders report showed funds as net buyers of 8,403 contracts, increasing their net-long positions to 65,153 contracts.

	BULL SIDE		BEAR SIDE
1)	October live cattle have yet to close the chart gap to the upside.	1)	Cattle futures could not rally in the face of lower corn prices. Traders were uncertain over the impact of China economic data.
2)	Feedlots are looking for higher cash again, hoping to gain on the need for packers to bid up to maintain the strong slaughter pace.	2)	Cattle futures are overbought and could see a large price correction.
3)	Hogs bounced back from negative trade Monday, closing higher. Higher cutouts may provide follow-through buying.	3)	A significant slowing of hog slaughter may back up market-ready hogs in the near term.
4)	Cash hogs should be higher if they follow the usual pattern of packers being more aggressive on Tuesday and Wednesday.	4)	Pork demand may be reduced after the next few weeks as outdoor grilling slows with many fairs and outdoor events behind for another year.

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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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