DTN Early Word Livestock Comments

Cattle: Lower Futures: Lower Live Equiv: $284.53 -$4.09*

Hogs: Lower Futures: Mixed Lean Equiv: $118.25 -$1.79**

*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:

It seems it is difficult for cattle futures to regain the losses of the last week. Futures made a valiant effort on Monday, but the buying interest did not carry through on Tuesday. Further cash weakness is expected this week. Packers may not be as aggressive as they have surrounded themselves with more cattle this week. Feedlots may have heavy cattle that will need to be moved, as it is not profitable to hold onto them any longer. The weakness in boxed beef is setting a negative tone, which may be difficult to overcome. Choice boxed beef fell $5.91, and select fell $5.63. The demand is strong for feeder cattle in the country, but further weakness in cash cattle may temper that exuberance.

October and February hog futures made new contract highs before turning lower for the day. This is a testament to the optimism prevalent in the market. However, further weakness in the cutouts on Tuesday may temper the market today. Pork cutouts were down $1.79, with weaker prices seen in all cutout categories. The National Daily Direct Afternoon Hog report showed cash up $0.42 with a large volume of hogs traded. Packers may not need to be aggressive the rest of the week, leaving cash struggling.

	BULL SIDE		BEAR SIDE
1)	Feedlots are paying a premium over the board in many cases, as they are having difficulty trying to keep their feedlots full.	1)	Cattle futures have been unable to recover from the losses incurred last week. The market has corrected from being overbought, but it has not resulted in more aggressive buying interest by traders.
2)	Cattle prices should hold at very high levels even if prices retrace. The cattle supply is tight, and it will take some time to rebuild the herd.	2)	Lower cash cattle prices are expected this week as feedlots may need to move heavier cattle.
3)	October and February hog contracts making new highs on Tuesday keeps the uptrend intact. Deferred contracts are holding support.	3)	Hog futures may have difficulty moving higher without consistent support from cutouts.
4)	The demand for pork seems to be improving as packers have been increasing slaughter to meet the demand.	4)	Packers have been aggressive during the first two days of the week and have purchased a significant number of hogs. They may not need to be as aggressive the rest of the week, resulting in lower 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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