DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $224.70 +$3.60*

Hogs: Higher Futures: Higher Lean Equiv: $106.30 +$2.58**

*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:

Live cattle spent much of the day on the positive side of the ledger with nearby months showing the most gains Monday. The liquidation phase may have run its course with futures below cash and cattle numbers remaining tight and expected to remain that way throughout the year. Support Tuesday may come from the huge increase in boxed beef prices Monday. Choice cuts jumped $4.90, moving the price back above $300 and ending at $302.07; select jumped $5.57, closing at $300.27. This should provide support for the market, indicating consumers have not backed away from beef. It already seems as if avian flu in dairy cattle is beginning to become old news as it has been circulating for a few weeks. So far, there is no indication of concern over the safety of the food supply. However, traders will be cautious for a time, and a substantial rebound in futures may be difficult to unfold.

Hog futures remain supported with buying interest aggressive. New highs were made in most contracts Monday with some posting new contract highs. It is interesting to see how the huge concern over pork demand due to the implementation of Prop 12 which plagued the market later last year has had no impact on the market once it was fully implemented. Hog prices have been on a steep uptrend ever since the beginning of the year. The National Daily Direct Afternoon Hog report decreased $0.38 Monday with a weighted average price of $86.32. Cutouts did very well with a gain of $2.58. Overall fundamentals remain positive.

	BULL SIDE		BEAR SIDE
1)	The liquidation pressure in cattle futures may have run its course. Support could develop again.	1)	Traders will be wary about buying into the cattle market very aggressively for a time with uncertainty over the avian flu's impact on cattle.
2)	The huge rebound of boxed beef prices Monday seems to indicate consumers may not have reduced consumption, but retailers had been holding back last week due to uncertainty and now they need to restock.	2)	Even though cattle numbers are tight and will remain that way, lower demand would limit the potential impact it will have on the market.
3)	Hog futures continue to make new highs as fundamentals are positive and demand strong.	3)	Hog futures are overbought and prices at these lofty levels may trigger a price correction. Futures generally fall faster than they increase.
4)	Packers are expected to be more aggressive with purchases Tuesday as they need hogs to maintain slaughter and satisfy demand.	4)	There could be some consumer resistance as cutouts continue to increase. They will not stop purchasing pork but may reduce purchases.

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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