DTN Early Word Livestock Comments

Cattle: Steady Futures: Lower Live Equiv: $264.23 -$2.55*

Hogs: lower Futures: Mixed Lean Equiv: $121.78 -$2.44**

*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 continue to march higher as new highs are nearly a daily occurrence. Strength in boxed beef has been limited and confined to only a few days over the past three weeks. However, traders are focused on tight supplies and little indication of heifer retention to rebuild the herd. Futures continue higher as traders who have been trying to pick the top continue to get run over and stopped out of the market. Cash cattle have not yet traded this week, and no trade is expected to develop until Thursday. Feedlots continue to hold the upper hand and are not pressured to move cattle. Feed is inexpensive, and holding cattle over to higher weights has resulted in financial benefit. Traders seem unconcerned over the weakness of boxed beef, with choice declining $3.54 and select falling $4.37 on Tuesday.

Hog futures came under significant pressure, fueled by stops being triggered as futures fell below the recent sideways pattern that had developed. The bottom of the range will now be considered as technical resistance and could result in further follow-through selling today. Traders seem to be disillusioned over the lack of pork demand, even though beef prices continue to increase. The packers remained aggressive on Tuesday, with the National Daily Direct Afternoon Hog report showing an increase of $0.79 on a high volume of hogs purchased. However, pork cutouts took it on the chin with value down $2.44.

	BULL SIDE		BEAR SIDE
1)	A strong uptrend in cattle and consistent new highs keep traders' active buyers, and confident in holding long positions.	1)	The cattle market is overbought and could result in a price correction that could be magnified due to the high prices.
2)	Feedlots will hold cattle over this week if they do not receive higher prices for cattle.	2)	If there were a weakness in the cash market, it would trigger significant selling as fund trades would liquidate some positions.
3)	Fund traders have reduced their long positions in hog futures but continue to remain long in the market in anticipation of better prices.	3)	The packers continue to reduce slaughter to improve margins. This may back up hogs in the country.
4)	The decline in hog futures on Tuesday may be viewed as a buying opportunity. The weakness may have been stops being triggered and not fundamentally induced.	4)	Lower pork cutout prices indicate demand is not as strong as had been hoped. Traders will maintain the discount in the October contract.

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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