DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $264.19 +$0.80*

Hogs: Higher Futures: Higher Lean Equiv: $123.74 +$0.85**

*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 may try to regain their recent losses as there has not been a change in fundamentals. It has been anticipated by many that a peak would have been reached numerous times; but there seems to be no end in sight. Cattle supplies remain tight, feedlots are confident to hold for higher prices, and consumer demand remains strong. Boxed beef prices on Monday were higher, with choice up $1.10 and select up $1.09. Packers have had two weeks of slaughter running below 550,000 head, which may support boxed beef prices. However, higher prices at the retail level could reduce demand as the calendar moves closer to the Labor Day weekend. Retailers may be cautious about the level of beef they need to have available, as some consumers may turn to other cuts of meat. Of course, that has been said repeatedly in the past, but it has not slowed the market.

Hog futures moved into and through the consolidation range they had been in for a brief period as prices rebounded Monday from the drop of last week. The December and later contracts regained the losses and closed above technical resistance. This may trigger further aggressive buying as traders become confident higher prices will unfold. Packers were not aggressive in the cash market Monday as the limited volume of hogs traded was insufficient for packers to confidently post price changes. Pork cutouts were up $0.85 at $117.79. Packers continue to reduce slaughter to improve their margins; but so far, it has not resulted in much change. Cash is expected to be higher Tuesday.

	BULL SIDE		BEAR SIDE
1)	Live cattle futures continue to hold a discount to cash and will need to reduce that discount if cash remains higher.	1)	Cattle futures remain overbought and may correct further if the market does not find greater support soon.
2)	Feedlots remain confident they can get higher prices again this week. Tighter supplies and continued strong beef demand leave them confident packers will need to pay more.	2)	Heavier-weight cattle require fewer head to be purchased to maintain beef tonnage. Even though slaughter has been lower the past two weeks, the volume of beef has likely been maintained.
3)	Hog futures moved back into the trading range with December and later contracts closing above technical resistance.	3)	Hog futures will need to receive increased support from both the cash market and cutouts for prices to trend higher.
4)	Packers are expected to be aggressive Tuesday as they purchased only a few hogs Monday and will need to step up their efforts.	4)	Pork demand seasonally decreases into the fall, with futures anticipating a substantial price decline. The October and December contracts are holding a large discount to August.

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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