DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $262.87 -$1.36*

Hogs: lower Futures: Mixed Lean Equiv: $121.93 +$0.15**

*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:

It is not common for live cattle futures to outpace feeder cattle, but traders became aggressive buyers Wednesday. Part of the strength was likely from the trend remaining higher with no end in sight. Another part may be that packers will need to pay more for cattle this week. There was some very limited cash trade Wednesday at $5.00 higher. We must not view that as the level at which cash will unfold, but it may have set the stage for feedlots to hold. There is an exuberance being exhibited by traders despite the market being technically overbought. Boxed beef prices continue to weaken, with choice down $2.20 and select down $1.57. This is further tightening the margins of packers.

Hog futures found some buying interest after initial weakness, but the buying lacked enthusiasm and was unable to regain the losses of Tuesday. Both cash and cutouts were higher, but traders remain cautious over demand. It has been anticipated that pork demand would improve as beef prices escalated, but so far, the demand increase has been less than expected. The National Daily Direct Hog report showed cash increasing $1.20 with a large number of hogs purchased by packers. Most of their needs for the week may have been met with packers lowering their bids the rest of the week. Pork cutouts showed a minor gain of $0.15. Hog weights averaged 281.1 pounds last week as the summer weather impacts weight gain.

	BULL SIDE		BEAR SIDE
1)	Continued new contract highs and no indication of a ceiling keep traders confident to buy and hold long cattle futures positions.	1)	Boxed beef continues to weaken, reducing packer margins. This will eventually impact the ability of cattle futures to continue to increase.
2)	Light cash trade at $5.00 higher may have set the stage for the week. Feedlots may hold for even higher prices as packers need cattle despite reducing slaughter.	2)	The weakness of boxed beef indicates reduced beef demand. This may be seasonal, but it may also be impacted by high prices.
3)	The bounce of hog futures Wednesday indicates the weakness on Tuesday was not a liquidation phase and likely stopped being triggered when futures fell below support. Trades felt it was a buying opportunity.	3)	Hog futures need to move back above resistance and into the previous trading range, or further selling could develop.
4)	Weekly hog weights decreased by 0.2 pounds last week to an average weight of 282.1 pounds. This is 1.6 pounds below a year ago.	4)	Weekly pork export sales have not been as good as hoped, with the report today possibly continuing the trend.

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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