DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $222.72 +$0.54*

Hogs: Lower Futures: Mixed Lean Equiv: $ 96.54 -$1.67**

*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:

With higher cash already factored into cattle futures, it may be difficult to generate much more upside unless packers become more aggressive. Some light cash trading took place in Nebraska at $293, which is $1.00 higher than last week. But the limited volume may not set the trend for the week. However, optimism might improve as boxed beef was higher for the second day with choice up $0.47 and select up $1.43. Packers may need to step up again this week if demand improves. It may be a little early, but traders will focus on the upcoming Cattle on Feed report on Friday. But with the release of the estimates, traders may be more apprehensive over this report. On-feed numbers on Oct. 1 are estimated at 99.8% of a year ago. Marketed in September is estimated at 90.3%. The concern of traders will be the placement number, estimated at 101.6%. The concern is not that placements may be higher, but that there is a huge variation with the range of estimates from 95.9% to 104.8%.

December and February hog futures showed quite a bit of strength early Tuesday as spreads were unwound; once unwinding was completed, futures fell back substantially. At one point the spread between December and June was $1.00 apart with December higher. However, December was only able to close $0.05 higher than June at the closing bell. The National Direct Afternoon Hog report showed a decline of $1.53. Cutouts did not offset the loss of cash with values down $1.67. Both the December and February contracts established new contract lows Tuesday. This does not provide support for Wednesday. Smithfield Foods announced the closing of its Charlotte, North Carolina, pork processing plant. The company will transfer production to its Tar Heel, North Carolina, facility. The move is for the purpose of increasing efficiency and to better utilize existing capacity.

	BULL SIDE		BEAR SIDE
1)	Initial cash cattle traded $1.00 higher with light volume. This may set the stage for price this week.	1)	Cattle just are not finding sufficient support to regain the losses and move back to contract highs. Futures may have limited upside potential.
2)	Boxed beef prices have moved higher the past two days, which could indicate seasonal demand may be improving.	2)	The wide range of estimates for placements in September may result in increased pressure as traders reduce their exposure ahead of the report.
3)	Hog futures closed near contract lows in December and February, which could trigger some technical buying interest.	3)	Cash hogs and cutouts continue to struggle, leaving traders less willing to buy the market. Funds may be liquidating more of their long positions.
4)	Low pork prices should stimulate greater demand as consumers may reduce their purchases of high-priced beef.	4)	New contract lows and closes near those lows could increase selling pressure as fundamental support is lacking.

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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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