DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $229.53 -$0.30*

Hogs: Higher Futures: Higher Lean Equiv: $110.12 +$2.01**

*Based on the formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. The 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 the numbers on the Cattle on Feed report known, traders decided the placement number should be the focus and provide support to the market. The supply of cattle will be tight the rest of the year and the potential for increased demand once the summer is over may provide renewed support for the market. Beef demand has slowed and has been reflected in the boxed beef prices over the past few weeks. Boxed beef on Monday was lower with choice down $0.39 and select down $0.47. Lower boxed beef prices have been the trend recently. The packers have been reducing the slaughter pace, attempting to improve their margins, but they have not made much progress in that direction as boxed beef prices continue to weaken. The early anticipation is for cash cattle to trade at steady money this week.

The recent rally in hog futures has been long overdue from a technical standpoint. Fundamentally, demand seems to have turned a corner as cutout values have been improving. Cutouts on Monday showed an increase of $2.01 from the previous day. The National Direct Afternoon Hog report showed a surprising increase of $1.62. It is unusual to see a strong cash market at the beginning of the week. The packers may remain aggressive Tuesday as they may want to purchase hogs early rather than wait until later in the week.

	BULL SIDE		BEAR SIDE
1)	The lighter cattle placements in June seem to be the focus of traders and should provide further support to the market.	1)	Packers have cattle purchased ahead, which may leave them less aggressive in the cash market again this week. Prices may be no better than steady.
2)	The cattle market is maintaining a sideways trading pattern during which it may build support. Strong beef demand is expected to resume after the summer months.	2)	Cattle futures have not been able to trend higher, but have been trading sideways. The top may have been established.
3)	Hog futures have corrected from being oversold. Fund traders have been short-covering and the higher trend should trigger more stops and higher prices.	3)	Traders will be cautious over continued pork demand. This may limit the upside price potential.
4)	Pork cutout values have been increasing as demand has increased. This should further support the market.	4)	Hog futures indicate the idea there will be a significant decline in hog prices as the year progresses. The October contract holds a discount of about $17.00 with December holding a $25.00 discount.

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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