DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $276.52 +$2.28*

Hogs: Higher Futures: Higher Lean Equiv: $125.04 +$1.69**

*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 opened higher Monday as some traders viewed Friday's sharp decline as a buying opportunity. Futures then turned lower for a time, only to close with minor gains. The action that took place Friday shows the vulnerability of the market due to high prices and an overbought status. The overall fundamentals remain bullish and new highs could again be made. Boxed beef prices rebounded, with choice up $2.68 and select up $4.52. The price strength in boxed beef may be due to retail outlets stocking up for Labor Day demand. But it seems like more than that, as consumer demand remains strong. Feeder cattle are in strong demand, with higher prices being paid at auctions as feedlots think there is little downside risk, feed prices are low, and they want to keep their lots full.

Hog futures did not succumb to the pressure on cattle on Friday and were able to gain more ground on Monday. The October contract showed the greatest gain as it will take over as the lead spot after the August contract ceases trading Thursday. October carries a substantial discount to the market, which will be reduced if hog market fundamentals remain similar to what they currently are. Packers took advantage of the low cash prices on Friday and began buying more aggressively on Monday. The National Daily Direct Afternoon Hog report showed cash up $1.52. Pork cutouts found support with the average price increasing $1.69. Cash hogs should be higher Tuesday as packers will continue to be aggressive in purchasing hogs to fill slaughter schedules.

	BULL SIDE		BEAR SIDE
1)	The liquidation in cattle futures may have been confined to a kneejerk reaction and not a change in trend due to reduced demand.	1)	Cattle futures made a paltry rebound after what seemed to be a knee-jerk reaction to lower cattle prices. Traders may remain cautious, and a further price correction may take place.
2)	The strength in boxed beef prices indicates demand remains strong and may continue that way.	2)	Friday's negative price action indicates the vulnerability of the cattle market and the volatility that can be expected.
3)	Hog futures are holding support. President Trump extended the deadline for higher tariffs on China for 90 days. This may support the market.	3)	Hog futures may have a difficult time moving much higher due to the inability of cash and cutouts to trend higher.
4)	Packers are expected to be aggressive buyers again Tuesday as they want hogs to maintain slaughter and fulfill demand.	4)	The supply of market-ready hogs remains sufficient and packers are not concerned over a tightening of supply anytime soon.

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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