DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $269.57 -$1.04*

Hogs: Higher Futures: Higher Lean Equiv: $125.48 +$1.73**

*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:

The cattle complex reached new highs Monday, despite the continued weakness in boxed beef. Boxed beef is a barometer of consumer demand, but traders do not seem to care and are trading the trend. It appears the idea is that demand weakness is seasonal and temporary, and consumer demand will remain strong. We all know cattle prices will not increase indefinitely, and a price ceiling will be reached. However, the trend is up, and that is all that seems to matter. Boxed beef prices continue to slide with choice down $1.48 and select down $1.41. Trading activity will be interesting the rest of the week as the Cattle on Feed report will be released Friday and cash cattle trade may be no better than steady due to packers having purchased quite a few cattle last week for deferred delivery.

It looked as if bullish traders were throwing in the towel during the day as hog futures were under pressure Monday. However, the weakness was viewed as a buying opportunity as support was evident in cash and cutouts. The National Daily Direct Afternoon Hog Report showed cash up $4.92, nearly erasing the decline on Friday. Pork cutouts continue to find support with values up $1.73 to $119.52. The strength in cutouts is an indication that demand is improving and should support the market. Packers did not purchase a large amount of hogs Monday, which may have them purchasing aggressively Tuesday.

	BULL SIDE		BEAR SIDE
1)	New contract highs in cattle futures keep traders bullish and confident of still higher prices.	1)	Boxed beef prices are trending lower, indicating demand is slowing for the time being. Packers will attempt to buy cattle at lower prices to preserve margins.
2)	Fund traders continue to add to their positions with the Commitments of Traders report showing new record longs in feeder cattle over the past two weeks.	2)	Packers were able to purchase 32% of the cattle last week for deferred delivery. They may be less aggressive this week.
3)	Pork cutouts have been increasing recently, reflecting increasing demand for pork.	3)	It may be difficult for hog futures to regain the losses from the recent liquidation, as traders may remain cautious over the upside price potential.
4)	The large decline in cash hogs Friday was an aberration, with cash recovering most of the decline Monday and likely showing further strength Tuesday.	4)	Packer margins are not very good, which will have them limiting slaughter or the amount they pay for hogs.

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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