DTN Early Word Livestock Comments

Cattle: Steady Futures: Lower Live Equiv: $288.28 +$1.38*

Hogs: Higher Futures: Mixed Lean Equiv: $123.39 -$2.12**

*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:

Traders turned aggressive in the cattle market Friday with futures contracts posting impressive gains. The support did not come from cash trade as most activity took place in both the Northern dressed and Southern live markets $4.00 to $5.00 lower for the second consecutive week. The strength seemed to stem from the strength in the equity markets moving to record highs, and some trade agreements made between the U.S. and China. These agreements were not specific to commodities, but any agreements with China seem to provide support to markets. A strike at the Tyson packing plant in Amarillo has begun. The employee union hadn't authorized the strike until before Friday's trade, which made it somewhat surprising the markets exploded higher as much as they did; but given the discount they currently carry to cash, the funds seem reluctant to press the markets lower. The June live cattle contract ceased trading Monday with August taking over as the lead month. The Commitments of Traders report showed fund traders as net sellers of 2,752 contracts in live cattle, reducing their long positions to 127,553 contracts. The funds backed off their record-long positions in feeder cattle by 324 contracts, reducing their net-long position to 34,269 contracts.

Hog futures closed the week mixed. Traders did not see much reason to take a position one way or the other following the Quarterly Hogs and Pigs report, even though the initial reaction was bearish. Most contracts were able to recover the initial losses to close higher. The minor strength in the cash market and the weakness in cutouts did not provide any direction. The National Daily Direct Afternoon Hog report showed cash up $0.09. Pork cutouts declined $2.19, with most of the pressure from the decline in hams of $13.10. Packers may be aggressive to begin the week as they want to purchase early due to the holiday-shortened week. The Commitments of Traders report showed the funds adding 5,608 long futures positions last week, bringing their net-long to 130,848.

	BULL SIDE		BEAR SIDE
1)	The June live cattle contract goes off the board Monday, with August taking over as the lead month. August holds a significant discount to cash.	1)	The strength in cattle futures Friday seemed to be driven by outside markets and not fundamentals. It may be short-lived.
2)	The cattle markets have corrected their overbought position, giving traders confidence to buy back into the market.	2)	Cattle slaughter will be reduced this week due to the holiday, which may result in lower cash.
3)	The fund traders added to their net-long futures positions as they remain bullish on the hog market.	3)	Hogs did not receive any bullish news from the Hogs and Pigs report, which may leave the market trading sideways. This could trigger technical selling.
4)	Packers are expected to be aggressive early this week, as it is a holiday-shortened week. They will want to buy the hogs they need quickly.	4)	Hog futures may see further price correction as the recent trend indicates the market may have reached its peak.

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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