DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $274.45 +$0.04*

Hogs: Lower Futures: Mixed Lean Equiv: $103.42 -$0.36*

*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:

It will take a monumental effort for cattle futures to regain the losses of this week. The uncertainty permeating the market will limit upside potential. Cattle supplies remain tight and should provide support. However, some of the decline may have been the elimination of some premiums that futures contained. The previous exuberance of traders may have pushed the market too high, adding more premium than was necessary. It is difficult to know where the market will settle out. No further cash trade took place on Thursday as feedlots hoped for a rebound in futures, and packers are determined to use the weakness to their advantage to pay lower prices. Boxed beef prices were mixed with choice down $0.29 and select up $0.51. Lower cash trade is likely.

Hog futures cannot find a bottom. The February and April contracts closed at the lowest level since the end of April. Cash was lower with the National Direct Afternoon Hog report donw $1.69. Packers continue to purchase hogs without difficulty and without having to consistently bid higher. Limited cash trade is expected Friday as packers have most of their needs covered. Pork cutout values were $0.36 lower as the market is well supplied with pork. The Relative Strength Index shows the market is more oversold than it was in April, from which the market rallied substantially as it corrected. This should trigger some short-covering, but it may not be as much due to a difference in the fundamentals.

	BULL SIDE		BEAR SIDE
1)	December live cattle futures hold a substantial discount to cash, which may limit further losses.	1)	The uncertainty in the cattle market may keep traders on the defensive and make price rallies difficult to maintain.
2)	Those who wanted to exit cattle futures after being locked limit down on Wednesday were able to get out on Thursday. This may limit further losses.	2)	Feedlots may be willing to sell at lower prices and not take the chance on further price weakness next week.
3)	Hog futures are severely oversold and may bounce a little ahead of the weekend.	3)	The trend in hog futures remains down, keeping traders confident to hold and add to their short positions.
4)	Retail demand should improve with the lower hog prices. Consumers want to stretch their food dollar and pork is a good source of protein in the diet.	4)	Packers have not had to be aggressive in purchasing hogs, resulting in continued lower cash prices. Hog supplies remain plentiful.

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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