DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $264.52 +$1.11*

Hogs: Higher Futures: Higher Lean Equiv: $113.30 -$0.95**

*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 overriding factor in the cattle market seems to be tight supplies. Cash has traded lower the past month and boxed beef prices have declined significantly over the same period; but traders continue to support the market. It may only be a matter of time before packers will need to step back up in the cash market more aggressively. However, for the time being, they have been able to purchase some cattle ahead for deferred delivery. They were able to do it again last week. Boxed beef prices were higher, with choice up $1.07 and select up $2.59. It has been a few weeks since both categories showed strength on the same day. Packers continue to reduce slaughter, attempting to improve margins. The November and January feeder cattle contacts easily closed the chart gaps from last week, with contracts averaging $5.50 higher across the board.

Nearby hog contracts made a valiant attempt to close higher in the nearby contracts Monday, but were unable to maintain the gains. The October contract has another week to trade and will hold somewhat in line with cash and the index. The National Daily Direct Afternoon Hog report showed cash up $0.67 as packers took advantage of the decline last week to purchase hogs at lower prices. They may be aggressive again Tuesday and will likely increase their bids. Pork cutout values declined $0.95 and may be an anchor on the ability of futures contracts to find solid support Tuesday.

	BULL SIDE		BEAR SIDE
1)	Feeder cattle closed the chart gaps and then some. Support remains due to tight supplies.	1)	One day of higher boxed beef prices does not indicate seasonal weakness is over. Consumers may be reducing their overall beef purchases.
2)	Live cattle futures may have broken out of their sideways trading range to the upside. Traders may become more aggressive, anticipating further strength.	2)	The cash cattle trade is expected to be lower again this week as feedlots need to move heavier cattle.
3)	Deferred hog contracts have had two days of gains, possibly indicating last week's liquidation is being viewed as a buying opportunity.	3)	The recent weakness in cash hogs may be difficult to overcome, as higher weights and increased slaughter limits price potential.
4)	The aggressive slaughter pace indicates demand for pork has improved. This could tighten the hog supply in time and support prices.	4)	An increase in pork demand does not mean higher pork prices, as there are sufficient hogs available to the market.

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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