DTN Early Word Livestock Comments

Cattle: Lower Futures: Lower Live Equiv: $269.54 -$0.50*

Hogs: Higher Futures: Higher Lean Equiv: $119.47 +$2.51**

*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 closed higher Friday after three days of price weakness. Even though cash was lower, futures already carry a discount as traders are expecting weaker cash in the near term. Much of the recent weakness has been from the impact of lower boxed beef prices. Boxed beef was lower on Friday with choice down $0.54 and select down $1.01. Cash cattle traded lower for the week, with Northern dressed cattle down $6.00 and Southern live cattle down $3.00. Feedlots have a tough decision to make this week, as holding back cattle the past two weeks has only resulted in lower prices. They may be more aggressive in moving cattle this week before prices erode further. This could result in further cash weakness. The Commitments of Traders report showed fund traders selling 2,680 live cattle futures contracts, reducing their net-long positions to 121,070. They sold 1,539 long feeder cattle contracts, reducing their net-long position to 23,873.

Hog futures posted new contract highs through June Friday as traders viewed the Hogs & Pigs report as friendly. Demand optimism also remains strong as cutouts are holding well. Cash was lower Friday as expected due to packers being aggressive earlier in the week. The National Dairy Direct Afternoon Hog report was down $1.32. The past few weeks have seen the packers as aggressive buyers Monday and today may be no exception. They want to procure hogs early rather than later, as demand has been strong. Pork cutouts increased $2.32 on Friday. The Commitments of Traders report showed the funds as net sellers of 198 futures contracts, reducing their long position to 140,103 contracts.

	BULL SIDE		BEAR SIDE
1)	Cattle futures have a discount already factored into the market, with traders having little reason to push contracts lower in the near term.	1)	Live cattle futures hold a discount to cash as traders anticipate further weakness to develop.
2)	Feeder cattle supplies remain tight, with feedlots paying a premium to purchase available cattle.	2)	Boxed beef prices continue to show weakness. The weakness may be seasonal, but it may also be due to consumers reducing consumption due to high prices.
3)	Hog futures made new highs Friday, providing confidence for traders to hold and add to long positions.	3)	The October hog contract has a chart gap below that may be filled before the contract finishes trading in two weeks.
4)	Packers may be aggressive in the cash maket to begin the week as they have been over the past few weeks.	4)	Continued higher hog weights may limit the volume of hogs purchased by packers.

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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