DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $291.47 +$3.17*

Hogs: Higher Futures: Higher Lean Equiv: $122.33 -$0.04**

*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:

Live cattle futures for the February and later months closed at new contract highs Monday. Feeder cattle closed at new contract highs across the complex. Packers are trying to improve their margins, but are having a difficult time accomplishing the task. They had reduced slaughter over the past few weeks to boost boxed beef prices and hopefully back up cattle prices in the country; but that only seems to be strengthening the cash price. Boxed beef prices have increased substantially with choice up $3.67 and select up $6.38. This strength continues to push futures higher, resulting in packers having to pay higher prices and feedlots remaining tight-fisted. The small volume of cattle purchased last week puts feedlots at a disadvantage, as they will need to step up this week to surround themselves with the cattle they need to operate efficiently and meet demand. The supply of feeder cattle remains tight, and prices remain strong, fueling continued buying interest.

Hog futures were able to maintain the gains of Friday on Monday and gave the impression the uptrend might be renewed. The cash market and cutouts were rather benign Monday. The National Daily Direct Afternoon Hog report showed cash down $0.18. Pork cutouts values slipped $0.04. It is expected packers will be aggressive Tuesday as they step up purchases to maintain slaughter. Technically, futures are positive with December and February maintain a choppy uptrend, while later contracts are nearing contract highs. Traders are not yet convinced they need to narrow the gap between the October contract and the cash market.

	BULL SIDE		BEAR SIDE
1)	New contract high closes in deferred live cattle and all feeder cattle contracts will keep traders bullish and willing to buy.	1)	Demand for beef may slow after Labor Day as consumers slow their buying due to high prices.
2)	Boxed beef prices are incredibly strong, as consumer demand has not decreased. Consumers like beef and are willing to pay higher prices for it.	2)	Market volatility will be heightened the higher futures move. The recent experiences of large moves may take place more frequently near the top of the market.
3)	Hog futures bounce back up into and then through the sideways trading range. This should keep traders interested in buying and holding contracts.	3)	Hog futures remain choppy as the underlying cash and cutouts have not found solid support. This may limit upside potential.
4)	Packers should step up aggressively to purchase the hogs they need, which should increase cash prices and support futures.	4)	Traders will continue to hold a discount to cash in the October hog contract as pork demand is expected to slow and prices decline.

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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