DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $269.39 +$1.16*

Hogs: Steady Futures: Mixed Lean Equiv: $106.79 -$1.49

*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 showed increased buying interest from traders as the government's intervention in beef prices does not appear it will have a significant impact on the overall market. However, traders will be cautious as the recent rhetoric should not be dismissed completely. It may be challenging for futures to recover from recent losses. Cash cattle have not yet traded this week, but trade is likely to be no worse than steady prices with last week. Boxed beef prices were mixed on Tuesday with choice up $2.75 and select down $0.89. Packers continue to maintain a slower slaughter pace in an attempt to improve margins. Their margins have dropped to the low levels they had been in May. Feeder cattle futures rebounded with caution, even though demand from feedlots remains strong.

Hog futures close higher despite weakness in cash and cutouts. Packers were able to purchase a large volume of hogs on Tuesday. The National Daily Direct Afternoon Hog report was down $0.22. The ability to purchase a large volume of hogs at lower prices does not bode well for cash the rest of the week. Pork cutout values declined $1.49, with all categories lower except bellies. Hog supplies are expected to tighten over time as indicated by the numbers on the last Hogs and Pigs report, but there is a plentiful supply at higher weights that need to be processed first.

	BULL SIDE		BEAR SIDE
1)	Traders seem to have assessed the impact of a possible intervention of the government in high beef prices and have dismissed the impact for now. Traders continue to support the market.	1)	Though traders have digested the announcement by the government that something will be done to reduce beef prices, traders will be cautious and unwilling to buy back into the market aggressively.
2)	The cash cattle trade is expected to be no less than steady. Feedlots will hold again as it paid off to wait last week.	2)	Packers have been reducing slaughter in an attempt to improve margins. This may back up cattle supplies in the feedlots.
3)	Hog futures were not quite able to close the chart gaps remaining from last week. These gaps will be filled at some point.	3)	Hog futures may have rebounded from being oversold, but fundamentals do not suggest the trend turning higher in the near term.
4)	The liquidation of hog futures may have run its course with prices overdone to the downside. Traders may turn into more aggressive buyers.	4)	Packers were able to purchase a large volume of hogs already this week. This may limit the need to be aggressive the rest of the week.

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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