DTN Early Word Livestock Comments

Cattle: Lower Futures: Lower Live Equiv: $266.70 -$1.44*

Hogs: Lower Futures: Lower Lean Equiv: $114.30 -$1.99**

*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 are in a tug-of-war between the bullish aspect of tight supplies and the potential for even tighter supplies and reduced demand. The impact the drought is having on pastures and the high calf prices may limit rebuilding of the herd. This may keep supplies tight. Lower cash trade and the weakness in boxed beef prices are bearish for the market. This tension may limit the upside price potential for now. Some light cash cattle traded on Wednesday in Nebraska at $5.00 lower than last week. This may set the stage for further activity at lower prices. Boxed beef prices were lower with choice down $2.56 and select down $0.36. Packers continue to reduce slaughter, allowing them to surround themselves with more cattle, reducing their need to be aggressive.

Hog futures took a hit Wednesday, marking the third consecutive day of weakness. Futures closed near the lows of the day and just above technical support. Holding this support level will be crucial to avoid further liquidation. Pressure so far this week has stemmed from lower cash and cutouts, with Wednesday being no exception. The National Daily Direct Afternoon Hog report showed cash down $1.82. Packers have been able to purchase a large supply of hogs without having to be aggressive. Pork cutout values declined by $1.99, with a decline in all categories except picnics. Bellies fell $9.68.

	BULL SIDE		BEAR SIDE
1)	Expanding drought conditions are impacting pasture conditions, which may hinder the rebuilding of the beef herd.	1)	A few dressed cattle traded in Nebraska at $5.00 lower than last week. This may have set the stage for lower cash for the week.
2)	Live cattle futures already have lower cash factored in, which may keep futures supported at current levels.	2)	Boxed beef prices continue to show weakness. The seasonal lull in demand has not yet been completed.
3)	Hog futures have closed lower for three consecutive days, resulting in closing the gap in the October contract. Liquidation generally runs its course in that time. Traders may buy the break.	3)	Weekly hog weights increased 0.9 pounds, averaging 287.9 pounds. This is 3.7 pounds above a year ago.
4)	Packers have purchased quite a few hogs this week, indicating strong demand and the need to run higher slaughter speeds.	4)	Packers have not had to bid up to obtain the hogs they need, indicating a plentiful supply of market-ready hogs.

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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