DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $296.13 -$2.32*

Hogs: Lower Futures: Mixed Lean Equiv: $121.84 +$2.55**

*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 weakness in cattle futures last week has resurrected the idea that maybe a top has been established in the market. It is too early to tell whether that is the case or not. We have seen price retracements many times, only to see futures moving to new highs. However, some cash weakness with Northern dressed cattle trading $2.00 lower may put further pressure on the market. The weakness of cash in the North may offset Southern live cattle trading $1.00 higher. Cattle futures closed lower for the week for the first time in 11 weeks. The indications that there may be quite a number of cattle needing to come to the market, as they have been held back and are now at heavier weights and need to be marketed. This may increase the anxiety of traders holding long positions, prompting them to take some profits. Boxed beef prices were lower on Friday with choice down $3.45 and select down $2.58. The Commitment of Traders report showed the fund traders adding 4,763 futures contracts last week in live cattle, bringing their net-long position to 126,530 contracts. Fund traders reduced their net-long position in feeder cattle by 2,782 contracts to 27,644.

Hog futures closed higher for the week after rebounding from the weakness during the week. The October contract came near making a new contract high but fell just shy of it. The December and later contracts continue to make new highs as optimism over stronger demand continues. The cash market has not been supportive of the strength, with the National Direct Afternoon hog report declining $3.18 with a weighted average of $101.25. Cash does not provide much support for higher prices. However, the October contract holds a discount to cash and is narrowing the gap. Pork cutouts jumped $2.55 and are a better indicator of demand. The Commitment of Traders report showed the fund traders adding 10,270 futures contracts of hogs, bringing their net-long position to 119,336 contracts.

	BULL SIDE		BEAR SIDE
1)	The cattle market may be correcting from being overbought technically and may be viewed as a buying opportunity.	1)	Cattle futures have closed lower for the week for the first time in 11 weeks. This could increase the desire for traders to liquidate some of their long positions.
2)	Cattle numbers continue to remain lower, with strong demand for feeder cattle at auctions. Feedlots are having difficulty finding the cattle needed to fill their lots.	2)	There is an indication that there is a significant amount of cattle at heavier weights needing to come to the market soon as holding them longer will not be profitable.
3)	New contract highs in hog futures should keep buying interest strong. Traders are optimistic that demand will hold or improve.	3)	Cash hog prices continue to erode, which may limit the upside price potential for futures.
4)	Pork cutout values are showing some signs of support as consumers are finding value in pork and may increase purchases.	4)	Pork packer margins are below a year ago, with the packers reducing slaughter, attempting to improve their margins. This will keep sufficient supplies available to 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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