DTN Early Word Livestock Comments

Cattle: Steady Futures: Lower Live Equiv: $294.58 +$004*

Hogs: Lower Futures: Mixed Lean Equiv: $118.95 +$0.38**

*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:

The cattle complex easily moved to new highs in response to the strength in the equity markets and the bullish implications of Fed Chairman Jerome Powell's speech on Friday. It was further fueled by higher cash being paid for cattle in the country as packers stepped up aggressively. Last week's cash trade was higher with $245 live and $385 dressed trading in the North. Southern trade reached $240, which was $3.00-$5.00 higher. While northern trade was higher, it was disappointing considering cash already traded at these levels before futures were this high. The exuberance of traders Friday may turn negative with trading expected to begin lower Monday morning in reaction to the neutral to negative Cattle on Feed report. On feed as of Aug. 1 was 98% and right in line with the estimate of 98.1%. Cattle marketed in July were 94% and in line with the estimate of 94.1%. Cattle placements were the bearish category at 94% compared to the estimate of 91.1%. This was right at the high end of trade estimates. Traders may react negatively to this report, but the placement number is 6% below a year ago, which is supportive in the big picture. The Commitments of Traders report showed fund traders increasing their long futures position in live cattle to 120,489 contracts, up 496 from the previous week. They reduced their feeder cattle futures position to 32,847, down 173 contracts from the previous week.

Hog futures reacted to the bullish equity markets similarly to the cattle markets. A better economy may mean stronger demand. Futures pushed above resistance easily and closed there. The National Direct afternoon Hog report showed cash down $0.69 as packers finished up buying for the week. Pork cutouts were higher with a gain of $.36. For the week, October hog futures were $1.10 higher than the close of the previous week, with the December contract up $1.35. October futures closed at the highest level since Aug. 12, with December closing at the highest level since Aug. 6. The Commitments of Traders showed the funds reduced their long position by 3,237 futures contracts to a net long of 102,594.

	BULL SIDE		BEAR SIDE
1)	Cattle futures pushed to new highs Friday, even though the Cattle on Feed report was to be released. Traders remain bullish on the market.	1)	Higher-than-expected cattle placements in July may trigger selling as traders may want to take some of their profits, while others may want to sell to hopefully profit on the liquidation.
2)	Placements in July were higher than the trade expectations, but the number of cattle placed was still 6% below a year ago. Bearish reactions to other negative Cattle on Feed reports over the past year were short-lived.	2)	Cattle futures are overbought and any selling pressure could be magnified as liquidation could gain momentum.
3)	Hog futures pushed above technical resistance as there were renewed hopes of strong demand due to a better economy.	3)	Cash and cutouts in the hog market have yet to find solid support and trend higher.
4)	Futures could resume an uptrend now that prices closed higher. This may increase trader interest in adding positions for the long haul.	4)	Pork demand has not increased as had been anticipated due to the high beef prices. Traders remain cautious and hold a discount to cash.

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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