DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $267.01 -$0.85*

Hogs: Steady Futures: Higher Lean Equiv: $117.33 +$3.39**

*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:

The cattle market certainly is a sight to behold. The strength seems to be increasing rather than reaching a threshold. Cash jumped as much as $10.00 higher in the South and $13.00 higher for dressed cattle in the North last week. The June live cattle contract showed the greatest gain as it needs to keep up with the strength of the underlying cash. For the week, June futures jumped $10.83 to $226.30, which is still lower than cash. Packers have been reducing slaughter to no avail, as demand is so great they must pay up to obtain the cattle they need. The cattle they purchased ahead of time have not been able to provide them the upper hand. Boxed beef prices were mixed with choice down $1.77 and select up $0.12. The Commitments of Traders report showed fund traders were net buyers of 1,087 live cattle futures contracts, bringing their long position to 124,738. The fund traders were net buyers of 1,500 feeder cattle futures, bringing their net-long to 33,639 contracts and a record net long position.

Hog futures had a positive week with new highs in the nearby contracts and continued new contract highs in the deferred contracts. The meteoric rise in the deferred contracts might be met with a price retracement as futures are overbought. However, the strength of pork cutouts indicates good demand that may provide further support in the near term. Pork cutouts advanced for the week to an average price of $111.51 with a gain of $3.39 on Friday. Cash was weaker on Friday, with the National Direct Afternoon Hog report down $1.30, but the weighted average closed above $100 for the week. This is the last week to trade the June contract, with futures likely remaining close to cash. The Commitments of Traders report showed fund traders as net buyers of 6,243 contracts, bringing their net-long position to 97,029.

	BULL SIDE		BEAR SIDE
1)	The strong gains in the cash market will keep the cattle complex supported. Traders see no reason to liquidate their long positions.	1)	The market will reach a level of resistance at some point. Prices will not increase indefinitely.
2)	Cattle supplies are tight, even though packers have been reducing slaughter. The feedlots remain in the driver's seat, holding out for higher prices.	2)	There are chart gaps below the market that may be filled at some point. Futures falling to that level may trigger further selling.
3)	The July hog contract has joined the others at new contract highs. Traders anticipate higher prices through the summer.	3)	Packers have been reducing hog slaughter in the effort to improve margins. This may limit the upside price potential.
4)	Pork cutouts moved to $111.51 and the highest price in a long time, indicating demand is improving.	4)	Hog futures are overbought and a price retracement could take place at any time.

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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