DTN Early Word Livestock Comments

Cattle: Lower Futures: Lower Live Equiv: $295.62 -$0.51*

Hogs: Higher Futures: Higher Lean Equiv: $122.35 +$0.51**

*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 were higher in all contracts except the nearby October. There seemed to be buying interest due to the weakness of last week being viewed as a buying opportunity. However, contacts were unable to make a higher high, which may leave the market in a bearish posture technically. Fundamentally, there may be limited downside, but the market remains overbought. Southern live cattle trading $2.00 lower last week does provide the idea that packers may be in a position to gain the upper hand in the near term. They have been able to obtain more cattle for deferred delivery and will maintain a slower slaughter speed for now in the hopes of improving their margins. Boxed beef prices were mixed on Monday, with choice down $1.07 and select up $0.15. Feeder cattle prices in the country have been tempered a bit due to the weakness of live cattle. However, demand to fill feedlots will remain strong.

Hogs were able to hold well for most contracts with only the October and December contracts closing lower. February and later contracts made new highs again, keeping the uptrend intact. Packers stepped up early in the week, with the National Daily Direct Afternoon Hog report showing cash up $2.58. They generally are not anxious to buy on Mondays, but pork movement over the weekend might have been strong. Pork cutouts increased $0.51 and should add further support to the market today. Cash needs to find a solid footing to support the market, or the uptrend may run out of steam.

	BULL SIDE		BEAR SIDE
1)	Most live and feeder cattle contracts closed higher, possibly indicating traders may look at the weakness last week as a buying opportunity.	1)	The inability of cattle futures to make a higher high on Monday may trigger further liquidation of long positions.
2)	The supply of cattle remains tight, and that will not change anytime soon. Beef demand remains strong, and packers will need to purchase cattle.	2)	Packers have been able to purchase a fair amount of cattle ahead for deferred delivery. This may leave them less aggressive in the cash market.
3)	Hog futures continue to make new contract highs as demand optimism remains strong.	3)	Cash hog prices will need to find consistent support, or futures may run out of steam.
4)	Packers are expected to be aggressive again today as they need to get their hands on more hogs early in the week to maintain slaughter.	4)	Hog futures are overbought and ripe for a price correction. Traders may be proactive and take profits rather than wait for fundamental weakness.

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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