DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $236.98 -$0.88*

Hogs: Higher Futures: Mixed Lean Equiv: $105.37 +$0.10**

*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:

Cattle futures took it on the chin Tuesday and optimism is subdued. The market is making the anticipated correction despite tight supply fundamentals. The bottom line is demand. Has the market moved to a level at which demand has been impacted sufficiently to indicate prices are too high even with tighter supplies? We quickly become accustomed to high prices and expect them to remain that way. The reality is that even if the price declines by $20 or so, cattle prices are still very high. Further weakness in futures may increase the desire of feedlots to move cattle more aggressively even at lower prices. Holding them over may only result in yet lower prices. Boxed beef prices closed lower with choice down $1.04 and select down $1.71.

Hog futures continue to find support. The selling pressure during the day Tuesday subsided with traders turning more aggressive. The National Daily Direct Afternoon Hog report showed a second day of no recorded price changes due to packer confidentiality. A weighted average price of $88.55 was posted with a volume of 5,500 head. Demand is good as packers continue to maintain a strong slaughter pace. This is keeping hogs current and may even tighten the supply. Pork cutouts increase by $0.10. Packers are expected to be aggressive Wednesday bidding higher prices.

	BULL SIDE		BEAR SIDE
1)	The price correction in cattle futures may be a buying opportunity in time. Cattle numbers remain tight.	1)	The top in the cattle market seems to have been made. It will be difficult to regain the losses if prices have now impacted demand.
2)	Cattle futures have corrected from being technically overbought. This may provide confidence to traders to re-enter the market on the long side.	2)	Live cattle futures closed below the 40-day moving average. This may trigger further selling as liquidation continues.
3)	Hog futures posted new contract high closes as traders remain bullish on the market.	3)	There seems to be a plentiful supply of hogs available as the packers can purchase what is needed to fill the higher slaughter schedules.
4)	Packers need to purchase more hogs for the week which should keep them paying higher prices Wednesday.	4)	Pork cutouts need to show consistent support or upside price potential may be limited.

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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