DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $224.53 +$0.25*

Hogs: Mixed Futures: Higher Lean Equiv: $92.35 +1.52**

*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 futures spent some time in negative territory Wednesday but gained strength as the day progressed. New contract highs continue to unfold as traders remain aggressive buyers. There was some very light cash activity in Texas on Wednesday at $174, but not enough to get a good indication of what may take place Thursday. However, there is strong optimism for higher cash to develop, which is underpinning cattle futures. Asking prices were floated at $175 in the South. Boxed beef prices closed mixed with choice up $0.88 and select down $0.62. Feeder cattle are in demand as buyers remain aggressive at auctions. Tighter supplies and continued strong beef prices are driving buyers to write larger checks.

Hog futures followed through Wednesday on the sharp gains of Tuesday. July and August posted the strongest gains and June remained close to the index as traders turned more optimistic for later contracts. The National Direct Afternoon Hog report showed cash up $11.47 as packers stepped up to procure hogs for a holiday shortened week. Cash has not shown this strength in quite some time. Cutouts were also higher with an increase of $1.59. If the previous pattern holds, futures may run out of steam either Thursday or Friday as it is unlikely fund traders will change their bearish attitude at this point and it is the beginning of a new month. Saturday slaughter is estimated at 120,000 head.

	BULL SIDE		BEAR SIDE
1)	New contract highs in cattle futures continue to fuel the rally supported by higher cash.	1)	Cattle futures are technically overbought and ready for a price correction.
2)	Tight cattle supplies are not going to change anytime soon and demand remains strong, keeping packers aggressive.	2)	June and August cattle as well as most feeder cattle contracts have chart gaps remaining below the current market. Gaps generally are filled.
3)	Hogs have been supported by strong cash and higher cutouts as retail is restocking the meat case after strong holiday demand.	3)	Much of the strength over the past two days in hogs might have been the result of short-covering to close out the month. A new month might bring sellers back into the market.
4)	Hog weights are down 2.2 pounds from last week, averaging 281.8 pounds. This is 4.6 pounds below a year ago.	4)	Packers were aggressive with purchasing hogs to replenish after the holiday. They may not be as aggressive to finish out the week.

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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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