DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $266.08 +$0.72*

Hogs: Lower Futures: Mixed Lean Equiv: $108.16 -$1.80**

*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 traded both higher and lower Wednesday with the market in a tug-of-war. The October through February contracts were able to close at new highs. Traders realized futures are carrying a premium to the current asking prices from feedlots, and some liquidation took place, leaving prices mixed. However, if cash trades higher, as expected, support should be maintained under the market. Boxed beef prices were mixed, with choice up $2.06 and select down $1.39. The mixed boxed beef prices will have little impact on trade, as beef demand remains strong and packers will have to purchase what is needed to maintain slaughter. Futures are overbought, but that will not trigger liquidation unless some aspect of the market turns bearish, and then it may only be short-lived.

Hog futures were able to post minor gains Wednesday, but the strength lacked conviction. Packers have not been aggressive with their bids despite the low price. Yet, they have been able to purchase a significant volume of hogs. The National Daily Direct Afternoon Hog report showed cash up $0.37. They may not be as aggressive as they have purchased a substantial volume of hog so far this week. However, pork cutouts took a hit, declining $1.80. The weekly hog weights increased 2.0 pounds from the previous week, averaging 291.0 pounds. This is 5.6 pounds higher than a year ago. Higher demand is being easily met with increased slaughter and more pork tonnage.

	BULL SIDE		BEAR SIDE
1)	The expectation is for higher cash cattle trade due to the strength of futures this week. Feedlots will hold for higher prices.	1)	October live cattle futures already have a premium to the asking prices for higher cash this week. This premium may be eliminated once the cash cattle trade is established.
2)	Trading may be mixed until further direction is seen from the cash cattle trade. The strength of cash will determine further gains.	2)	Cattle futures are overbought, and a larger price correction may take place.
3)	Hogs futures may find support after the substantial liquidation that has taken place. The market may be overdone to the downside.	3)	Hog weights continue to increase, resulting in more pork being available on the same volume of hogs. Increased slaughter is keeping demand filled.
4)	Hog futures have chart gaps above the market that need to be filled. Technical traders may buy at current prices in anticipation of gaps being filled in the near term.	4)	Traders may be unwilling to support the hog market until they see consistent fundamental support.

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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