DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $263.39 +$0.76*

Hogs: Higher Futures: Higher Lean Equiv: $122.89 +$2.96**

*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:

Cash cattle traded $3.00 higher in both categories as packers needed to step up and purchase cattle to maintain even a slow slaughter pace. Their margins continue to erode, but demand needs to be satisfied. Boxed beef prices were mixed, with choice up $1.90 and select down $0.87. Packers have had difficulty surrounding themselves with sufficient cattle to avoid having to pay more, but feedlots hold the upper hand. If feedlots do not get what they want, they will hold cattle over to the next week. Cattle are not backed up in the country, and feed is not expensive. Feeder cattle found solid support Friday as the tariffs on Brazilian beef should be supportive to the market. The Commitments of Traders report showed fund traders as net sellers of 1,349 live cattle futures contracts, reducing their net-long position to 124,946 contracts. They were net sellers of 2,374 feeder cattle contracts, reducing their net-long position to 34,040.

Hog futures had sufficient buying interest to push contracts back into the sideways trading range Friday. This may provide further support as traders may be confident adding to their long positions. Unfortunately, the National Daily Direct Afternoon Hog report showed cash down $2.76, continuing to erode the weighted average price. However, pork cutouts did well, gaining $2.94. The fund traders maintain a net-long position, but that has been slowly eroding as demand remains erratic, unable to find the consistent support that had been anticipated. Higher beef prices were expected to improve pork demand as more consumers turned to lower-priced pork. That has not been the case, as pork demand has not been consistent. The Commitments of Traders report showed funds as net sellers of 2,426 futures contracts, reducing their net-long position to 104,753.

	BULL SIDE		BEAR SIDE
1)	Cash cattle trading $3.00 higher last week should continue to provide support to the market. Beef demand remains strong.	1)	Cattle futures remain overbought as the recent weakness was insufficient to correct that condition. Further liquidation could take place.
2)	The August live cattle contract holds a discount to cash that will need to narrow as it converges to cash. This was clear Friday as it jumped significantly relative to other contracts.	2)	Packer margins continue to erode and reduced slaughter is not providing consistent support to boxed beef prices.
3)	Hog futures moved back into the sideways trading range after breaking below it earlier last week. Traders bought the break in anticipation of stronger prices.	3)	Hog futures moved back into the trading range but may have difficulty moving above the top end of the trading range under the current fundamentals.
4)	Packers may step in to buy aggressively to begin the week in response to the lower cash price Friday. This gives them a lower base to start with.	4)	Packers may not be aggressive Monday as they wait to see the level of weekend pork demand.

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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