DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $257.64 +$1.96*

Hogs: Lower Futures: Lower Lean Equiv: $105.94 +$0.65**

*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 posted a negative week, not because of cash but because of an overbought market. Cash did not perform as well as in the past few weeks, but was not bearish either. The market took a breather, but traders supported futures into the weekend. Southern cash cattle traded mixed from $1.00 lower to $1.00 higher, with Northern dressed cattle averaging $2.00 higher. This was not bearish but was a bit disappointing to traders. Packers had a significant amount of cattle purchased ahead and did not need to be as aggressive. It is uncertain as to their position moving into this week. Boxed beef prices remain supportive with choice up $2.59 and select up $3.21. Feeder cattle trade at auctions reflected the decline in futures with prices lower in most classes. The Commitments of Traders report showed fund traders adding 2,278 live cattle long futures contracts, bringing their net-long position to 127,889. There were 2,475 long futures positions added to feeder cattle, bringing their net-long position to 30,795 contracts.

Hog futures closed mixed Friday after posting strong gains for the week. The October contract was able to make a new high, providing some optimism over the potential for hog prices. The close of the week was bearish for cash with the National Daily Direct Afternoon Hog report falling $6.69 to a weighted average of $88.10. That is the largest decline seen in quite some time. The decline seems a little excessive, but packers are desperately trying to improve their margins. Thankfully, pork cutouts were higher with a gain of $0.40 at $100.12. The Commitments of Traders report showed fund traders adding 8,728 futures positions, bringing their net-long position to 77,979.

	BULL SIDE		BEAR SIDE
1)	The liquidation might be finished in cattle futures with the bounce into the weekend. Traders may be ready to buy back into the market aggressively.	1)	The bounce Friday in cattle futures may not be sufficient to indicate the market has finished its price correction. Further weakness may continue as traders are nervous about the record prices.
2)	Boxed beef prices continue to remain supported with consumer demand remaining strong.	2)	Cash cattle trading was mixed in the South last week, which may indicate prices might have difficulty seeing much more upside potential once Memorial Day weekend demand is satisfied.
3)	Hog futures posted a strong week with the October contract making a new high Friday. Further support may be seen this week as traders are optimistic over demand.	3)	The huge decline in cash hogs Friday may be difficult to recoup as packers attempt to improve margins.
4)	Hog futures maintained much of their gains of the week, even though packers were not aggressive and paid quite a bit less Friday.	4)	Chart gaps remain below the market and may be filled. Further weakness of cash could trigger liquidation.

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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