DTN Early Word Livestock Comments

Cattle: Steady Futures: Lower Live Equiv: $288.30 +$0.02*

Hogs: Higher Futures: Mixed Lean Equiv: $121.30 -$2.09**

*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 followed through on the strength of Friday despite the lower cash trade last week. The June contract ceased trading on Monday, with August taking over as the lead-month and carrying a significant discount to cash. Traders are being cautious due to the recent weakness of cash cattle trade and the potential for reduced beef demand as the summer progresses. However, fundamentals remain bullish and should keep support in the market. Boxed beef prices were mixed with choice down $0.93 and select up $1.17. It is a holiday-shortened week, which should result in cash cattle trade taking place earlier. Imports of cattle, bison, and horses from Mexico will resume as of July 7, starting with the port in Douglas, Arizona. Other ports of entry will be phased in over the next 1 1/2 months. Imports were stopped on May 11 due to the threat of the New World screwworm.

Hog futures came under pressure Monday with nearby contracts showing the greatest losses. Traders seemed to unwind some of their bull spreads that had been a trading favorite for a few weeks. The implications of the Hogs and Pigs report may have triggered this activity. The July contract fell to the top of the chart gap that has remained since June 16, and it is likely this gap will be filled before the contract ceases trading in 2 weeks. Packers were aggressive Monday, wanting to begin early due to the holiday-shortened week. The National Daily Direct Afternoon report showed cash up $3.79 with a moderate volume of hogs traded. Cash hogs should be higher again Tuesday as packers should remain aggressive in purchasing the hogs they need early in the week. Pork cutouts did not fare well, declining $2.05.

	BULL SIDE		BEAR SIDE
1)	The August live cattle contract holds a significant discount to cash, which may be reduced in the coming weeks.	1)	The resumption of cattle imports from Mexico may have a psychological influence on the market, resulting in some selling pressure.
2)	Cattle futures have had 2 days of strong gains as short-covering took place and new buying surfaced. This may provide confidence for more traders to buy into the market.	2)	Cash cattle are expected to trade no better than steady this week, with the potential for lower trade to develop.
3)	Hogs have corrected their overbought position and closing the chart gap in July may be the level at which technical traders will buy back into the market.	3)	Hog futures have fallen more than expected, which could trigger further liquidation as the uptrend seems to have ended.
4)	Packers should be aggressive in purchasing hogs again Tuesday as they want to obtain the hogs they need before the holiday weekend.	4)	Pork cutouts are not performing well recently and could indicate demand is holding steady rather than improving.

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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