DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $268.14 -$0.28*

Hogs: Lower Futures: Mixed Lean Equiv: $116.29 -$1.88**

*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 spent some time in negative territory Tuesday; but buying interest surfaced in feeder cattle, propelling futures over $5.00 higher. This strength spilled over into live cattle, but it lacked the exuberance. Boxed beef was mixed with choice up $0.35 and select down $1.64, but that was not enough to trigger the strong buying. Boxed beef remains in a bearish trend. It seemed it was driven by the Quarterly Grain Stocks report, which showed higher corn stocks keeping feed prices lower. The market remains supportive due to lower cattle supplies and the expanding drought impacting pastures.

Hog futures did an about-face from Monday as selling erupted as traders could not find anything to push prices higher Tuesday. Futures opened lower as traders decided to exit their long positions. Futures were overbought, but the real driver seemed to be packers being able to purchase a substantial volume of hogs at lower prices. The National Daily Direct Afternoon Hog report showed a decline of $0.19 on a substantial volume of hogs purchased. This may leave them less aggressive for the rest of the week. Pork cutouts declined $1.88, adding further pressure on the market. Futures will need to hold at these levels or further selling could erupt, resulting in a larger price correction.

	BULL SIDE		BEAR SIDE
1)	The increasing drought that is impacting pasture may result in further liquidation of the already tight cattle herd. This would extend the rebuilding process.	1)	Even though the choice boxed beef was higher Tuesday, the overall market is weak and is likely to remain that way for a longer period of time.
2)	Lower feed prices are expected to remain, according to the grain stocks report. This will reduce the urgency to sell cattle and provide bargaining flexibility as they can hold cattle for higher prices.	2)	Reduced consumer demand may be due to the high beef prices, causing consumers to reduce their purchases to stretch their food budget.
3)	The selling in hog futures may have been profit-taking in an overbought market. This may be viewed as a buying opportunity.	3)	Some profit-taking was triggered in hogs due to it being overbought and weakness in cash and cutouts. Further selling may continue Wednesday.
4)	Packers have been increasing slaughter, which may require them to purchase more hogs to maintain the pace. They may be more aggressive Wednesday.	4)	The October hog contract has a chart gap below that may be filled before the contract goes off the board in two weeks.

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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