DTN Early Word Livestock Comments

Cattle: Steady Futures: Lower Live Equiv: $199.63 -$0.61*

Hogs: Higher Futures: Mixed Lean Equiv: $88.27 +$1.35**

*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:

Cattle slid lower yesterday as there had been some disappointment with cash trade waiting until Thursday and then trading steady with last week. Trading activity was light in the North which was not enough to indicate what will transpire today, but it may have set the stage. Southern cattle have not yet traded with bids and offers about $3.00 apart yesterday. There is no doubt packers will need cattle to maintain a strong slaughter pace, but feedlots continue to see high feed prices and will need to move cattle that are ready for the market. Export sales were good at 25,100 MT but were unable to provide support. Boxed beef was mixed with choice up $0.47 and select down $0.32.

Hog futures found support but not until after lower lows were established early in the trading session. It seemed as if there was a delayed reaction to the strong weekly exports sales report which showed 44,770 MT of pork sold with China being the second largest buyer. Traders saw the making of stronger cutouts which settled $1.35 higher for the day. This may have triggered hope that cutouts may have finally found a bottom. If so, further short covering may unfold as futures are significantly oversold. The negative was that cash was weak with the National Direct Afternoon Hog report with a loss of $1.70. Saturday slaughter is estimated at 97,000 head.

	BULL SIDE		BEAR SIDE
1)	Cash trade has been delayed until today which many times is more bullish for cash prices. Packers may need to step up to procure the cattle they need.	1)	Traders became a bit disillusioned with light cash trading in the North at steady money with last week. This may have set the stage for cash today.
2)	Slaughter pace is still strong which indicates beef movement is good. Packers have not yet pulled back as some had anticipated.	2)	Beef packer margins are running well below last year and the 3-year average. Packers will want to improve those margins by paying less due to declining boxed beef.
3)	Traders bought into the market aggressively after first making new lows. Short covering in an oversold market could result in further follow through buying today.	3)	Cash hogs did not do well yesterday which may put some pressure back on the market. Lower cash is expected again today.
4)	There have been two weeks of strong export sales which should provide support under the market. China has been a somewhat consistent buyer recently.	4)	Stronger futures yesterday may have only been short covering and not new buying interest. That may leave the market vulnerable to further weakness once the short covering is finished.

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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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