DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $290.91 +$0.74*

Hogs: Steady Futures: Higher Lean Equiv: $102.29 -$1.39**

*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 rebounded after there was no apparent reason for the recent weakness experienced. Beef prices continue to hold, and the drought that is affecting cattle country may hinder any potential to rebuild the beef herd in those areas. Anything that the government has done to bring beef prices down so far has not worked, as the high prices are a result of a reduced beef herd. Much of the increase in beef cattle numbers has been the result of an increasing dairy herd, adding beef-on-dairy calves into the feedlots. Of course, this is reducing the milk price as more dairy cows produce more milk. Some feedlots have developed relationships with dairy farms to purchase their calves, as it provides a steady supply of animals for the feedlots and dairy farms calve throughout the year. Boxed beef prices were higher, with choice up $0.78 and select up $1.64.

Hog futures rebounded, but not until after a new low was established earlier in the day. The price rebound was not the result of any specific news in the market, as cash was not reported on the National Daily Direct Afternoon Hog report due to submission problems. Pork cutout values declined by $1.39. There are considerable headwinds in the hog market that are not letting up. Bullish fundamentals are not evident, leaving the market to technicals or perception. The rebound on Tuesday seems to be some bottom picking by traders in the attempt to take a profit by scalping the market.

	BULL SIDE		BEAR SIDE
1)	The drought in cattle areas will hinder the rebuilding of the cow herd. Any government incentive programs may be a moot point for now.	1)	The uncertainty of what the government might do in reference to the beef industry may limit the upside price potential for now.
2)	Boxed beef prices remain strong as consumers continue to purchase beef.	2)	Beef export demand may be impacted due to high beef prices. After all, high prices cure high prices by impacting demand.
3)	Hog slaughter remains strong, indicating demand is holding well. Packers need to purchase and process more hogs to meet the demand.	3)	Hog futures made a new low before rebounding, which leaves the downtrend intact.
4)	Hog futures may have declined sufficiently to generate greater buying interest by traders. Another day of strength could generate further short covering.	4)	The demand for pork is good, but not good enough to tighten the available supply in 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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