DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $275.77 -$0.81*

Hogs: Lower Futures: Mixed Lean Equiv: $118.65 -$0.62**

*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:

On Tuesday, live cattle futures in the nearby months could not extend the gains of Monday, as the strength increased the desire of traders to take some profits. There was also spread trading taking place, as there is growing evidence cattle supplies may be tighter next year. There has been no indication of cash trade to provide direction, but packers may need to pay steady money for the cattle they need, despite lower boxed beef prices. Choice boxed beef declined $0.59, with select down $2.19. Feeder cattle futures were able to maintain and extend the gains of Monday, likely in response to the discovery of the New World Screwworm 70 miles from the U.S. border. This will ensure the border will remain closed indefinitely for the importation of cattle from Mexico. Feeder cattle demand will remain strong, with feedlots having some difficulty obtaining the cattle they need to maintain their capacity.

Hog futures posted a strong day with new contract highs in all months, maintaining the uptrend and fueling buying interest. The October contract gapped higher on the open and never looked back. The National Daily Direct Afternoon Hog report showed cash up $0.16 with a substantial volume of hogs purchased by packers. Unfortunately, pork cutout values were down $0.62 and may temper Wednesday's trade somewhat. Packers may not be as aggressive Wednesday; however, they may remain active as the increased slaughter pace requires more hogs. Hog futures have remained resilient despite variable cash and cutouts. The Quarterly Hogs and Pigs report will be released on Thursday. The estimates are for all hogs and pigs on Sept. 1 at 100.4%, kept for breeding at 99.5%, and kept for marketing at 100.4%.

	BULL SIDE		BEAR SIDE
1)	The Mexican border will be closed indefinitely due to another discovery of the New World screwworn 70 miles from the border. Feeder cattle will not move across the border.	1)	The Cattle on Feed report may be factored into the market. Futures may have difficulty increasing further without better demand.
2)	Packers were not able to purchase many cattle for deferred delivery, possibly requiring them to at least pay steady money this week.	2)	Boxed beef prices remain weak. This may be a seasonal slump in prices, but it may also be the impact of high beef prices.
3)	Hog futures established new contract highs Tuesday, keeping the uptrend intact and traders confident holding long positions.	3)	Packers have purchased a substantial volume of hogs over the past two days and may not be aggressive Wednesday.
4)	Packers have increased slaughter due to good demand for pork. Higher weights have not slowed the pace.	4)	The October hog contract gapped higher on Tuesday and may fill the gap before the Hogs & Pigs report on Thursday.

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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