DTN Early Word Livestock Comments

Cattle: Steady Futures: Lower Live Equiv: $254.71 -$0.09*

Hogs: Lower Futures: Mixed Lean Equiv: $102.71 +$0.12**

*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 initially moved to new highs Wednesday, as it seemed the strong uptrend would continue. However, the overbought status of the market and record-high prices made traders nervous, and selling was triggered. Selling pressure increased as the market moved lower and more traders decided to exit due to the possibility of a larger price correction. Cash cattle have not yet been traded for the week. Psychologically, this could pressure cash as feedlots may want to move cattle more aggressively with the weakness of futures. Memorial Day is a little over a week away, after which demand may slow. Boxed beef prices were mixed with choice down $0.74 and select up $1.38, which should not be a concern for traders.

Hog futures seemed to move in tandem with cattle Wednesday as selling pressure increased shortly after cattle turned lower. Granted, cash and cutouts did not provide anything for traders to get excited about. The National Daily Direct Afternoon Hog report showed cash down $0.66, and cutouts showed a gain of $0.11. Technical traders may be in a quandary as June and July contracts have chart gaps both above and below the current market. The weekly average hog weights were lower and may continue to decline as the calendar moves to summer.

	BULL SIDE		BEAR SIDE
1)	New contract highs were made in cattle, indicating the uptrend is still intact. The action on Wednesday may be a market correction and not a change in trend.	1)	The price reversal in cattle futures on Wednesday may see further liquidation Thursday as fund traders may increase the exit of more of their positions.
2)	The chart gaps in live and feeder cattle futures were closed on the weakness into the close Wednesday. This could rekindle aggressive buying interest.	2)	Feedlots may be willing to let go of cattle due to the weakness of futures. Packers already have some cattle purchased ahead, leaving them less aggressive this week.
3)	Hog futures moved in sympathy with the weakness of cattle and not from an overbought or bearish indication.	3)	The weekly hog weights remain 1.7 pounds above a year ago. The higher slaughter pace keeps the market supplied with pork.
4)	The weekly hog weights declined 0.9 pounds to an average of 289.6 pounds. Hog weights should decrease as increased temperatures dominate the next few months.	4)	Further liquidation in cattle futures could result in spillover pressure on hog futures.

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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