DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $250.13 +$0.10*

Hogs: Steady Futures: Higher Lean Equiv: $103.93 +$1.92**

*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:

New contract highs in cattle have been nearly an everyday occurrence and are not expected to be over. The strength of cash last week was a sight to behold after the previous week's strength. Southern live cattle traded $5.00 to $6.00 higher, with Northern dressed cattle trading $8.00 higher. It is doubtful packers purchased many cattle for deferred delivery last week, which may set the stage for higher cash this week. Traders will watch boxed beef prices to see how well they perform. Boxed beef prices were mixed Friday, with choice down $0.27 and select up $1.07. It is difficult to determine whether feeder cattle are leading the complex or are following live cattle, but August feeder cattle futures are not far from reaching $300 and could achieve that this week. The Commitments of Traders report showed fund traders adding 7,140 live cattle futures contracts, bringing their net-long position to 122,493. The funds reduced their net-long feeder cattle position by 308 futures contracts to 26,863.

Liquidation in hogs ran its course with traders buying back into the market again. July hogs closed above $100 again, possibly indicating renewed optimism has returned, and futures may regain last week's losses. As expected, cash was lower on the National Direct Afternoon Hog report on Friday with a decline of $0.88. Packers are not expected to be aggressive to begin the week, but will wait to see the level of pork movement last week. Pork cutouts were higher with a gain of $1.92 and a value of $98.38. Cutouts have been slowly increasing and should provide support. The Commitments of Traders report showed fund traders adding 9,941 futures positions in hogs, increasing their net-long position to 65,630 contracts.

	BULL SIDE		BEAR SIDE
1)	Live cattle futures are below cash and may increase to make up the difference, continuing to push futures to new highs.	1)	Feedlots may increase their desire to move more cattle at these lofty prices. They will not continue to hold them for higher prices, as it costs money to continue to feed them at higher weights.
2)	It is unlikely packers were able to purchase many cattle for deferred delivery. They may need to be more aggressive again this week.	2)	Beef prices will reach a level of resistance at some point. If consumers slow down consumption, beef prices will decline.
3)	The average pork cutout price has been improving slowly and is nearing $100. This should improve the confidence of traders to establish long-term positions.	3)	Hog futures rebounded after the liquidation ceased. However, it may be difficult to regain the losses anytime soon.
4)	Packers continue to run increased chain speeds, indicating demand remains strong.	4)	Demand for pork has been improving, as seen by the increased slaughter pace. However, the increase has not been sufficient to tighten the supply.

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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