DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $267.62 +$0.76*

Hogs: Lower Futures: Higher Lean Equiv: $113.04 +$2.60**

*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 lost ground last week with futures prices lower than the previous week's close. That is not as bad as it seems, as the beginning of last week had quite a bit of volatility from the false rumor of the New World screwworm in the U.S. However, it did show the possibility of what could take place if there were a negative unforeseen event that could impact the market. New trading limits will go into effect Monday, June 2. Live cattle will increase from $6.50 to $7.25, and feeders will increase from $8.25 to $9.25. I think Tuesday's trade was a glimpse of what the markets will do if we were actually to get a negative headline that sticks. Expanded limits will be $10.75 for live cattle and $13.75 for feeders. For the week, Southern live cattle traded $2.00 to $3.00 higher, with Northern dressed cattle $6.00 to $8.00 higher. Boxed beef was higher with choice up $0.25 and select up $3.01, continuing the trend of record prices. The Commitments of Traders report showed fund traders reducing their position in live cattle by 2,386 contracts to a net-long of 123,651. They sold 661 long positions in feeder cattle, reducing their net-long position to 32,139 contracts.

Hog futures had a strong close for the week with contracts closing near Friday's highs. Good weekly export sales might have provided some support, with further support coming from the strength in pork cutout prices for the week. Cutouts increased by $2.60 on Friday to an average of $107.22. Cash did not do well on Friday as packers had little interest in doing business. The National Daily Direct Afternoon Hog report showed a decline of $3.55. The July contract closed at the highest price since Feb. 18. The August and later contracts closed at new highs. The Commitments of Traders report showed the funds bought 2,979 futures contracts, bringing their net-long position to 90,786 contracts.

	BULL SIDE		BEAR SIDE
1)	Packers continue to pay up for cattle as demand remains strong and they have not been able to get ahead with supplies.	1)	Another strong week of cash cattle trade was unable to move futures to new highs. Traders might be more cautious over these record prices as they will not hold indefinitely.
2)	Boxed beef continues to see record-high prices. This should continue to provide support to the market.	2)	Feeder cattle contracts closed the chart gaps that had remained above the market and then fell back on Friday. This may set a negative tone for the market.
3)	Deferred hog contracts continue to make new highs as traders are optimistic about demand as the year progresses.	3)	China was not a buyer of pork in the weekly export sales report. The tariff situation has them looking elsewhere.
4)	Export sales are holding well, keeping pork moving to international buyers.	4)	Cash hogs were significantly lower Friday with packers unlikely to be aggressive buyers Monday until they assess weekend pork movement.

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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