DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $276.28 -$3.89*

Hogs: Lower Futures: Lower Lean Equiv: $119.43 -$0.64**

*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 began Friday showing moderate strength, but that changed quickly as cash cattle began trading. The aggressiveness of packers was surprising, with Northern dressed cattle trading as much as $10.00 higher and Southern live cattle as much as $6.00 higher than the previous week. This quickly moved the August live cattle contract to a significant discount to cash. All futures contracts for both live and feeder cattle closed at new highs. The negative influence on the market that may create some uncertainty today is the substantial decline of boxed beef. Choice cuts fell $6.02, with select cuts down $4.37. This may create some confusion as to the price direction for the week. The Commitment of Traders report showed the fund traders adding 605 live cattle futures contracts, bringing their net-long futures position to 123,764 contracts. They were more aggressive in feeder cattle as they increased their long position by 3,524 contracts, bringing their net-long futures position to a record 36,196 contracts.

Hog futures showed weakness as demand seems to be on and off again. There had been some hope earlier in the week that demand might be holding and could see a return to increased interest in pork. However, those hopes were dashed as cash and cutouts did not perform as anticipated. The market may be under pressure today as packers backed away from the market on Friday. The National Daily Direct Afternoon Hog report showed cash down $5.74. Pork cutouts added to the overall market weakness with a decline of $0.68. The Commitment of Traders report showed funds reducing their long position by 3,062 contracts to the current net long of 128,398 contracts.

	BULL SIDE		BEAR SIDE
1)	New contract highs in cattle futures and stronger cash will continue to provide confidence to traders to add to their long positions.	1)	The large decline in boxed beef prices on Friday may indicate slowing demand. This may limit the upside price potential in cash as packers will try to maintain margins.
2)	The large increase in cash puts the nearby cattle contracts at a significant discount to cash. Futures may increase to narrow the gap.	2)	Cattle futures are overbought and may have a price correction this week.
3)	The demand for pork may return as rising beef prices may turn consumers to increase pork consumption.	3)	Hog futures fell below the recent sideways trading range that had developed. Further selling could be triggered.
4)	The weakness in hog futures might have been some positioning ahead of the weekend. This may result in traders buying the break for the long term.	4)	The August and October hog contracts have a chart gap remaining at lower prices. Further weakness would be required to close those gaps.

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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