DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $265.86 +$1.34*

Hogs: Higher Futures: Mixed Lean Equiv: $111.98 -$1.32**

*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 cattle complex seems to have turned a corner and traders have regained confidence that prices will remain strong. There has been no doubt that cattle supplies are tight and will remain tight for some time. The weakness of boxed beef may have run its course and with prices increasing over the past two days. On Tuesday, choice boxed beef increased $2.63, with select up $0.91. The gains have not been much compared to the declines seen in September, but it might indicate prices may have found support. Cash cattle have not yet traded, but further weakness may develop due to packers having reduced slaughter and already having some cattle purchased ahead. This may keep cattle futures mixed as futures have moved closer in line with the possible weaker cash trade. Feeder cattle provided much of the support to live cattle, with the nearby contract nearly back to contract highs and the May and later contracts establishing new highs.

Hog futures have been unable to find solid support, with the December contract closing at the lowest level since Aug. 26 Tuesday. Futures have not been able to regain a solid footing since the selloff last week. Packers did not support the cash market on Tuesday, with the National Daily Direct Afternoon Hog report down $0.76. Pork cutouts took a hit, falling $1.32. Support will need to be found soon, or further selling may take place as traders liquidate long positions. Packers should step back in and purchase more aggressively as they want to fill their needs for the week and to maintain the increased slaughter pace.

	BULL SIDE		BEAR SIDE
1)	New contract highs in the deferred feeder cattle futures have turned the trend back up and may provide more confidence for traders to increase their long positions.	1)	If further weakness takes place in cash cattle trade this week, futures may fall back again.
2)	As long as cattle supplies remain tight, any price weakness may be temporary.	2)	If boxed beef prices show weakness, traders may liquidate some positions, as it might indicate the strength was temporary.
3)	The demand for pork seems to be holding well as packers continue to maintain an increased slaughter pace.	3)	Nearby hog futures closing at the lowest level since August does not bode well for the market. Traders have not viewed this break as a buying opportunity.
4)	The December hog contract holds nearly an $11.00 discount to the October contract that will end trading on Monday. The spread may narrow.	4)	Packers have been increasing slaughter pace, but have had a plentiful supply of hogs available, reducing the need to be aggressive.

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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