DTN Early Word Livestock Comments

Cattle: Lower Futures: Higher Live Equiv: $285.68 -$1.30*

Hogs: Lower Futures: Higher Lean Equiv: $102.21 +$0.22**

*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 tried to regain a foothold Wednesday, making a valiant effort to regain some of the recent losses. Although the October and later live cattle contracts closed slightly higher, the nearby August closed lower, resulting in a lower high and lower low. Even though the August carries a substantial discount to cash, traders have been unwilling to support the contracts, being concerned about the strength of cash over the next two months. We know supplies are tight, but the market is driven by demand. Cash cattle trade on Wednesday showed Southern live cattle $3.00 lower and Northern dressed cattle $5.00 lower. This may keep traders cautious about becoming exuberant with buying. Boxed beef prices were lower, with choice down $1.90 and select down $1.99. Feeder cattle showed greater weakness as traders are uncertain over near-term prices.

Hog futures have been the recipient of spread trading over the past week. Bear-spreading took place on Wednesday, unwinding the bull spreads of earlier in the week. Traders are uncertain whether support is being established or there may be another leg down at some point. The safer way to trade the market is through spread trading. The National Daily Direct Afternoon Hog report showed cash down $0.66 on good volume. It seems packers have purchased a large portion of their needs for the week with cash expected to be lower Thursday. Pork cutout values increased $0.22. The markets will be closed on Friday for the July 4 holiday weekend.

	BULL SIDE		BEAR SIDE
1)	Lower cash cattle trade is already factored in, which could result in some short-covering and new buying interest ahead of the extended weekend.	1)	Cash weakness was not expected and may cause traders to maintain the significant discount of August live cattle futures to cash.
2)	Fuel prices continue to decline, which may increase consumers' disposable income and help maintain strong beef demand despite high beef prices.	2)	Boxed beef prices may show weakness after the July 4 holiday as summer weather may impact beef consumption.
3)	Hog futures are slowly building an uptrend as support holds. Slaughter remains strong, indicating good demand.	3)	The weekly hog weights increased by 0.8 pounds to average 286.9 pounds. This is 2.8 pounds higher than a year ago.
4)	Hog futures remain oversold, which could result in further short-covering as the market seems to have established support.	4)	Hog futures continue to remain near support, trying to establish an uptrend. However, market fundamentals have provided little reason for traders to become bullish.

For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CDT. 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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