DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $284.65 +0.42*

Hogs: Higher Futures: Higher Lean Equiv: $119.41 +$3.28**

*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 showed no evidence over the concern of last week when it was announced that imports of cattle from Mexico were to resume on Monday. Traders realized that it would not significantly alter the volume of cattle available to the market. Interestingly, cash traded lower over the past month, but live cattle futures seem poised to revisit the highs. The feeling is that cash will trade steady at best this week as the packers may not need to be aggressive. They also intend to maintain their recent increase in margins. Boxed beef prices were mixed on Monday, with choice up $1.23 and select down $0.91. Feeder cattle moved to new contract highs in the August, September, October and December contracts. The Commitment of Traders report showed fund traders selling 4,394 live cattle futures contracts, bringing their net-long position to 123,159 contracts. There were 1,597 contracts sold in feeder cattle, reducing the net-long position to 32,672 contracts.

The July lean hog contract declined as it needed to adjust closer to cash due to the contract closing in a week. The renewed interest in the August and later futures was the result of interest in buying the break as well as strength in both cash and cutouts to begin the week. The National Dairy Direct Afternoon Hog report did not show any change in cash due to the low volume of hogs, but it is anticipated that packers will be aggressive today. Pork cutouts jumped $3.28, regaining some of the weakness of last week. The Commitment of Traders report showed the funds adding 612 futures positions, increasing their net long to 131,469 contracts.

	BULL SIDE		BEAR SIDE
1)	Feeder cattle futures moved to new contract highs as the resumption of imports from Mexico is not considered bearish.	1)	Cash cattle are expected to trade steady at best this week as the packers have cattle on hand and will want to preserve the recent surge in margins.
2)	Traders are willing to buy the break in cattle in anticipation of tight supplies and continued good demand.	2)	New contract highs in feeder cattle may be difficult to maintain if cash cattle do not trade higher.
3)	The surge in pork cutout values renews the idea that the lull in demand may have been temporary and confined to the holiday week.	3)	Hog futures made lower lows on Monday before turning higher. That does not indicate a bottom has been reached.
4)	The fund traders hold a substantial volume of long hog futures contracts in anticipation of continued price strength.	4)	The packers did not purchase a large volume of hogs on Monday as they are uncertain about pork movement over the weekend.

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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