DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $221.10 -$0.28*

Hogs: Steady Futures: Mixed Lean Equiv: $103.72 -$0.40**

*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:

Even though the avian flu virus has not been found in beef cattle and it is safe to consume the meat from an infected cow, consumers seem to have reacted negatively to the news by curtailing consumption. Boxed beef prices took a hit with choice down $9.55 and select down $8.73 last week. Boxed beef on Friday showed some moderation with choice up $0.02 and select down $1.35. Significant damage has been done both fundamentally and technically. Cattle futures have declined to the lowest level since mid-January. At that time, the market rallied substantially, but there had been no avian flu in cattle at that time. The market may have a difficult time coming back from current levels. Lower cash cattle took place last week, but the decline in futures was more than the decline in cash, which could result in some stability developing this week.

Hog futures were the recipients of aggressive buying with May through July contracts gaining over $2.00. Traders were spread trading between nearby hogs to deferred hog contracts and between cattle and hogs. There is potential that some of these spreads could unwind Monday as cattle are oversold and hogs are overbought. The National Direct Afternoon Hog report showed cash down $0.53 with the weighted average price at $86.70. Cutouts were lower with a decline of $0.40. However, both cash and cutouts posted a strong week. This may be difficult to duplicate this week, but the market is expected to maintain its overall strength, but not without some price retracements.

	BULL SIDE		BEAR SIDE
1)	Cattle futures are oversold, and short-covering could bounce that market as cattle numbers remain low and packers are still rather aggressive.	1)	Boxed beef prices fell as consumer demand slowed. There is a concern about the further spread of avian flu and the development of a possible impact on consumption.
2)	Feeder cattle remain in strong demand and higher prices at auctions with tight supplies available.	2)	The weakness of cash cattle last week may carry over this week if boxed beef prices continue to slide.
3)	Hog futures continue to set new contract highs, showing no signs of slowing down. Traders continue to buy the strength.	3)	Hog futures are overbought and are due for a price correction. Many times, markets will fall faster than they increased.
4)	The avian flu in dairy cattle seems to have turned consumers more toward pork, improving demand for the time being.	4)	Packers are not expected to be aggressive Monday with hog purchases and futures may react to the weakness of cash and cutouts on Friday.

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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