DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $194.47 -$0.12*

Hogs: Lower Futures: Mixed Lean Equiv: $127.99 +$1.44**

*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:

Live cattle had the cash market gain of $2.00 to $4.00 already factored in with traders seemingly looking ahead to the Cattle on Feed report today. Trading action might be two-sided as no one may want to position themselves overly long or short. Packers have had to pay up to obtain the required cattle to maintain the strong slaughter pace. It will be interesting to see what they will be doing in the weeks to come as their margins are running substantially below last year and are lower than the three-year average. It is unclear whether they have been able to differ delivery of many cattle this week. Boxed beef was mixed with choice up $0.05 and select down $0.42. Weekly export sales totaled 18,900 MT, up 29% from the previous week with China as the largest buyer. The Cattle of Feed report will be released this afternoon. The average estimate for on feed supply is 100.7%, placements of 98.5% and marketings of 97.1% of a year ago.

Hog futures fell off a cliff yesterday continuing the heavy liquidation after a day of brief reprieve. Fundamentals do not suggest the market has turned bearish. Cash on the National Direct Afternoon Hog report closed lower as expected although the decline of $7.25 was significant. Cutouts closed $1.44 higher but did not offset the bearishness of cash and the technical selling pressure on futures. Weekly exports were not supportive at 13,600 MT, down 37% from a week ago. China was not listed as a buyer. Follow-through selling is likely as futures closing on or near the lows suggests further liquidation. Saturday slaughter is estimated at 57,000 head.

	BULL SIDE		BEAR SIDE
1)	Packers seem to be short-bought and need to bid for cattle aggressively to maintain a strong slaughter pace.	1)	Cattle futures were unable to post gains even though cash traded higher. Traders are reluctant to lead the market higher.
2)	The Cattle on Feed report could show some positive numbers that could indicate tighter supplies down the road.	2)	The Cattle on Feed report has been a wild card and one that will have traders positioning themselves to limit exposure into the report, leaving futures drifting.
3)	Heavy liquidation of hog futures may run its course today as it is the third day, and it is the last day of the week.	3)	Hog futures may be moving down to close the chart gap that has been open since early July.
4)	Hog slaughter has been picking up which indicates strong demand. Hog weights were up slightly from the previous week but nearly 2 pounds below a year ago.	4)	Weak export sales are not what the market wants to see. Pork needs to keep moving so supply does not back up.

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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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