DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $274.00 +$2.52*

Hogs: Lower Futures: Higher Lean Equiv: $122.28 +$1.11**

*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 had a cautious beginning Thursday, but that quickly turned into aggressive buying and new contract highs across the board. Feeder castle pushed over $6.00 higher in some contracts as the freight train picked up steam. Continued new highs in record territory and an overbought market do not seem to be a cause for concern, as beef demand remains strong, supplies remain tight, and feedlots continue to hold. One has to wonder where it will all end; but for now it certainly is a sight to behold. The high beef prices have not turned international demand away, as the weekly export sales report showed 15,900 metric tons (mt) were exported, up 88% from the previous week. Packers are looking at the inevitability of paying more for cattle this week, but are uncertain what it will take to accomplish the task. Boxed beef extended its recent strong gains with choice up $4.08 and select up $2.39.

Hog futures showed some spread trading as the nearby months responded to packers being less aggressive. The National Daily Direct Afternoon Hog report showed cash down $2.55. Cash continues to erode, with the average price Thursday at $111.22 and lower than last week. The gain in cutouts of $1.11 was not sufficient to provide support to the nearby futures contracts. Packers purchased a large amount of hogs this week, likely leaving them less aggressive again Friday. Weekly export sales were good at 31,000 mt, but were 22% lower than the previous week.

	BULL SIDE		BEAR SIDE
1)	New contract highs in cattle futures continue to fuel further buying interest. Price retracements are buying opportunities.	1)	Higher cash cattle prices may already be factored in, which could result in some profit-taking ahead of the weekend.
2)	Feedlots are not anxious to sell and will hold cattle unless they receive the prices they want.	2)	Cattle traders may be increasingly nervous at the higher prices, increasing the potential of larger price swings on weakness.
3)	Traders may hold their long positions in hogs and buy futures at support, anticipating better demand.	3)	Cash hogs have been unable to trend higher as packers have been unaggressive in the cash market due to plentiful supplies.
4)	August hog futures will expire Thursday and are currently trading at a discount to cash. Futures may need to move higher to converge.	4)	October hog futures continue to hold a large discount to cash. Traders anticipated price weakness moving forward.

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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