DTN Early Word Livestock Comments

Cattle: Lower Futures: Lower Live Equiv: $276.58 +$0.09*

Hogs: Higher Futures: Higher Lean Equiv: $119.27 +$1.25**

*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 on Feed report triggered a bullish response by traders, resulting in aggressive buying Monday. The January and later feeder cattle contracts closed up the daily limit, with expanded limits in place for Tuesday. The limit for live cattle now is 10.75 and 13.75 for feeder cattle. It is unlikely this full range will be used unless traders decide to liquidate due to the discovery of the New World Screwworm 70 miles from the U.S. border. The last time there was a false report that it was found in Missouri, the market fell limit-down. However, since it wasn't found in the U.S. it may not impact the market negatively. This news had been in the market during the trading day Monday. Boxed beef prices were mixed with choice down $0.66 and select up $2.17.

Hog futures found support with the June and later contracts moving to new contract highs Monday. Packers were aggressive Monday, paying $3.22 higher as reported by the National Daily Direct Afternoon Hog report on 11,169 head. Packers have increased slaughter and need to purchase hogs to meet the increase. Pork cutouts increased $1.25 to an average of $113.30. The strength was in picnics with a gain of $4.95. The Quarterly Hogs & Pigs report will be released Thursday. It is too early for traders to position themselves ahead of the report. They may not cover positions much, as the report may show little change from a year ago.

	BULL SIDE		BEAR SIDE
1)	The strength in cattle futures on Monday, with feeder cattle limit up, would suggest follow-through buying will take place Tuesday.	1)	The discovery of New World screwworm 70 miles south of the U.S. border is cause for concern and may temper the exuberance of the cattle market.
2)	The Cattle on Feed report indicates cattle supplies remain tight, and it is likely this will not change anytime soon. Cattle prices are expected to remain strong.	2)	Short-covering was triggered as a response to the Cattle on Feed report, which may have run its course, being overdone relative to current fundamentals.
3)	The deferred hog futures continued to make new contract highs on Monday, keeping the uptrend alive and well.	3)	Nearby hog futures may have difficulty breaking through technical resistance without consistency in cash and cutouts.
4)	Packers have increased slaughter to satisfy the improving pork demand. They have been more aggressive in the cash market.	4)	Hog weights have been increasing, adding more tonnage to the market. This may continue as long as feed prices are low.

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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