DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $293.48 +$2.01*

Hogs: Higher Futures: lower Lean Equiv: $118.38 -$3.95**

*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:

Boxed beef prices increased in both categories Tuesday, providing further support to the market. Choice boxed beef increased $2.96, with select up $2.62. There is a strong demand for beef even though prices continue to increase. Reduced slaughter has increased beef prices, but it also puts packers in a position where they may need to pay more for cattle this week, as they may be short-bought due to limited cash trade last week. One would think cash business would need to be done earlier this week to obtain the cattle needed to meet demand. However, the Cattle on Feed report will be released Friday and, many times, cash trading is delayed until the day of the report as either packers or feedlots hope for an advantage. The estimates for the Cattle on Feed report are for on-feed numbers Aug. 1 at 98.1% of a year ago. Placements in July of 91.2% and marketings in July at 94.1%.

Hog futures could not find sufficient fundamental support to trigger the excitement of traders Tuesday. Futures closing mixed is considered a victory, as there has been little for traders to establish a trend. The positive aspect is that futures are holding, as traders seem confident to hold their long positions. Cash was higher Tuesday, with the National Daily Direct Afternoon Hog report showing a gain of $1.96. However, the substantial weakness in cutouts does not bode well for demand. Pork cutouts fell $3.95, with the average at $112.41. Packers have been reducing slaughter, but it has not improved their margins much.

	BULL SIDE		BEAR SIDE
1)	Strong boxed beef prices indicate solid demand. Consumers have yet to reduce beef consumption.	1)	Traders may begin positioning ahead of the Cattle on Feed report, which could result in selling pressure.
2)	Packers did not purchase many cattle last week, likely putting them into a short-bought position requiring them to pay up for cattle this week.	2)	Labor Day weekend is approaching and retail buying of beef may slow as demand for the holiday is filled.
3)	Hog futures are holding support, with traders confident that futures will increase to reduce the discount to cash.	3)	Hog traders will need to see stronger fundamental support; otherwise, they may liquidate due to limited upside potential.
4)	Packers should remain aggressive buyers again today as they seek to procure much of what they need for the week.	4)	The supply of market-ready hogs remains sufficient with packers having little difficulty getting what they need without chasing the market.

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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