DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $184.33 -$1.14*

Hogs: Lower Futures: Higher Lean Equiv: $111.93 +$3.53**

*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.

Even though cash traded mostly $1.00 higher in both the North and South, cattle futures were unable to find support, posting triple-digit losses in nearby contracts for the day. Weekly export sales were not as good as hoped with 15,200 metric tons (mt), which may have added to the negative trade. Likely the focus on the trade turned to the upcoming Cattle on Feed report Friday. On feed numbers as of Sept. 1 are estimated at 100% of a year ago. Placements are expected at 98.5% with marketings at 106%. Placements being lower should be supportive, but the track record of the past number of reports keeps traders nervous over the actual placement number. USDA has been consistently higher than trade estimates. This prompted some profit-taking despite stronger cash. Boxed beef did not help with choice down $0.73 and select down $4.03. Packer margins continue to tighten.

October hogs recorded a fourth consecutive day of losses, as traders just are not excited about the market. Cash was significantly lower with the National Direct Afternoon report showing a loss of $4.12. However, the bright spot was the $3.53 increase in cutouts. This was not enough to generate buying interest from traders. Weekly export sales were good with 29,000 mt sold. China has not been a top buyer, but they have been a consistent buyer recently. Futures may rebound a bit Friday as traders might cover some short positions into the weekend. Saturday slaughter is estimated at 136,000 head.

	BULL SIDE		BEAR SIDE
1)	If cattle placements come in as expected on the report Friday, it would provide support to the market as it would solidify the trend of tightening numbers.	1)	Cattle were unable to penetrate and hold new contract highs. This may result in further long liquidation.
2)	Higher cash was expected and received. Packers needed to bid up to obtain the desired supply. Feedlots will set their sights higher next week.	2)	Feeder cattle have fallen significantly with the confirmation of the head-and-shoulders top. Further weakness is expected.
3)	Hogs have shown weakness much of the week with short-covering likely into the weekend.	3)	Hogs just cannot find consistent support from cash or cutouts. This leaves limited upside potential.
4)	Strong cutouts will improve packer margins in turn, allowing them to be more aggressive with their hog purchases to maintain an active slaughter pace.	4)	Hog futures remain overbought, which could result in another day of selling as traders may not have finished liquidating long positions.

**

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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