DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $187.23 -$1.35*

Hogs: Steady Futures: Mixed Lean Equiv: $113.62 -$1.03**

*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:

Cash cattle trading steady to $1.00 higher Thursday provided the confidence for traders to buy futures more aggressively. The fact that packers needed cattle and stepped up to the plate Thursday provided the hope that further gains might be possible. The concern is the weakness of boxed beef as prices were down again Thursday. Choice declined $1.13 with select down $0.16. Packer margins are substantially below a year ago and the three-year average, which may soon prompt packers to slow chain speed in the attempt to back up supply and increase margins. Export sales were good but not exceptional, keeping the market focused mainly on the strength of cash.

Hog futures pushed higher despite the weakness of cash and cutouts. The National Direct Afternoon Hog report showed cash down $3.15. Cutouts were down $1.03. The strength Thursday stemmed from strong export sales with last week's sales totaling 25,100 metric tons. Not only were last week's sales good but the previous three weeks of exports were released, showing strong sales. This eliminated the unknown of international demand, providing a positive aspect to overall demand. October hogs are bumping up near chart resistance while later contracts penetrated overhead resistance, opening the way for further gains. Saturday slaughter is expected at 72,000 head.

	BULL SIDE		BEAR SIDE
1)	Steady to higher cash cattle provides the hope for further gains next week as packers seem light on supply.	1)	Live cattle futures are up against chart resistance and near contract highs. A failure to move above these levels may trigger technical selling.
2)	Weaker corn prices should support feeder cattle allowing futures to regain some of its losses.	2)	Weakness of boxed beef may result in packers taking steps to reduce slaughter pace in order to improve margins.
3)	Pork export sales are good, keeping production moving rather than backing up in the market. China has been a more consistent buyer recently.	3)	The strength of hogs Thursday was not supported by cash or cutouts. This may have a bearish influence on trade Friday.
4)	The strength this week has pushed futures through chart resistance levels, providing confidence for technical traders to add to long positions.	4)	Upside price potential might be limited unless cutouts improve.

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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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