DTN Early Word Livestock Comments

Cattle: Steady Futures: Lower Live Equiv: $284.23 -$2.92*

Hogs: Higher Futures: Mixed Lean Equiv: $116.13 -$0.55**

*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:

Packers stepped up later on Thursday and purchased cattle for a full week of slaughter. Most of the cash trade took place at steady money with the previous week, with some business done at $2.00 lower in both the live and dressed market. The August contract carries a substantial discount to cash, and it is uncertain whether futures will increase or cash will decline by the end of August. Packer margins have improved dramatically in June, with margins now above $300 per head, rising from about $50 per head at the beginning of the month. Boxed beef prices took a hit on Thursday, with choice down $5.11 and select down $1.87. This may put pressure on futures Monday as beef demand may slow after the holiday weekend. The port in Douglas, Arizona, will be reopened Monday for the importation of cattle from Mexico.

The nearby hog contracts did not have a good week, posting significant losses ahead of the holiday. Pork cutout prices showed weakness and cash traded lower throughout the week, triggering further liquidation. The National Daily Direct Afternoon Hog report showed cash down $1.85 on Thursday. Pork cutout values declined $0.54. The question that will be answered in the next few weeks is whether prices declined due to the holiday or whether overall demand has slowed and will remain lower as the summer progresses. Packers may be aggressive Monday as they may step up early to purchase what they need for the week.

	BULL SIDE		BEAR SIDE
1)	The August live cattle contract holds a substantial discount to cash and traders may push the price higher to narrow the gap.	1)	The substantial decline in cutouts Thursday may be an indication beef demand has peaked and lower prices may unfold.
2)	Cash cattle trading mostly steady last week could increase the resolve of feedlots to hold out for better prices this week in light of the strong packer margins.	2)	The August live cattle contract left a chart gap on the opening on Thursday that may be filled sooner rather than later.
3)	Hog futures have corrected their oversold status, and traders may view this as a buying opportunity.	3)	Packers may not be aggressive Monday as they wait to see the level of pork movement over the holiday.
4)	Packers may be aggressive early this week as they need to obtain hogs to maintain a strong slaughter schedule and rebuild pork supplies after the holiday weekend.	4)	Packer margins are not profitable, which may limit the volume of hog slaughter weekly until those margins improve.

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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