DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $268.00 +$2.27*

Hogs: Higher Futures: Higher Lean Equiv: $107.60 +$0.90**

*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:

The anticipation is for beef demand to improve seasonally. The question is whether this is the time or if an increase in demand will be delayed, due in part to the impact from the outside markets affecting consumer spending. Packers are trying to improve their margins, but that has been a difficult task. Slaughter continues to run below a year ago, but that alone has not been sufficient to improve boxed beef prices. Choice boxed beef increased significantly on Monday, gaining $5.35, but that is not much compared to the recent losses. The strength will need to continue. Select boxed beef declined $1.78, eliminating some of the gains on Friday. The initial indication is that cash will be higher this week as packers are already bidding higher than last week. No trade has developed as feedlots will seize the opportunity to obtain higher prices for their cattle. The failure of cattle futures to hold gains indicates traders are cautious and deciding to take profits after last week's gains.

Nearby hog futures contracts tried to hold in positive territory, but succumbed to spread trading with traders uncertain whether positive demand fundamentals will hold. The sharp decline of futures last week has been unable to develop significant buying interest, giving the impression that the large decline was not only fund liquidation and a market correction, but also fundamentally driven. The National Direct Afternoon Hog report showed cash down $0.96 on moderate volume. Packers are expected to be more aggressive Tuesday. Pork cutout values increased $0.90.

	BULL SIDE		BEAR SIDE
1)	Some packers are already posting bids higher than cash traded last week, indicating they may be short bought.	1)	The inability of cattle futures to extend their gains on Monday may mean the decline in June and July may not have been only a market correction, but demand driven.
2)	Cattle in some areas continue to be impacted by hot weather, with further death losses and weight losses being reported.	2)	It is uncertain how much impact the hot weather has had on the overall cattle herd. It may not have a significant impact on the big picture.
3)	Hog futures are building some support after the recent weakness. Traders are waiting for confirmation of continued strong demand.	3)	Hog futures have not been able to rebound from the recent large decline. Traders are not ready to buy back into the market.
4)	Hog slaughter continues to run ahead of a year ago, indicating consumer demand remains good.	4)	Packers continue to find sufficient market-ready hogs available. This limits their need to bid up to purchase what they need.

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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