DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $275.43 -$0.02*

Hogs: Higher Futures: Mixed Lean Equiv: $96.81 -$0.02**

*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 opened higher and maintained the strength through the close. The October live cattle contract moved back to the highest level since Aug. 12. Feeder cattle showed similar price movement, with the September contract moving to the highest close since Aug. 11. Higher cash trade last week is fueling the strength as the packers stepped up to the plate as the feedlots held for higher prices. Southern live cattle trade took place late last week, with cash as much as $4.00 higher. October futures still carry a discount to cash; there is still sufficient time to adjust higher if cash remains strong. Boxed beef prices remain lackluster, with choice down $0.63 and select up $1.42. The packers will fight to maintain margins.

Hog futures gapped lower at the open and never returned to close the gap throughout the day. New contract lows were made in the October, December, and February contracts, but fortunately they did not close on their lows. Unfortunately, the October contract closed at a new low. The National Daily Direct Afternoon Hog report showed cash down $2.56 to $82.82 and the lowest level in a long time. The packers did not purchase a large volume of hogs and are expected to step up more aggressively today. Pork cutout values were not as bearish, declining $0.02. The slaughter pace remains strong, and it appears hogs are being pulled forward, but the packers continue to purchase sufficient supplies at lower prices.

	BULL SIDE		BEAR SIDE
1)	Higher cash last week will provide feedlots confidence to hold for higher prices again this week.	1)	Boxed beef prices remain variable. Supermarket beef prices have declined for the second consecutive month.
2)	Technical traders may have their sights set on the previous highs on Aug. 6. Fundamentals suggest this will happen.	2)	The packers will fight to maintain margins and will limit what they will pay for cattle as long as boxed beef remains lackluster.
3)	Hog futures have had two days of liquidation, with the bounce from the lows possibly indicating the selling wave is finished.	3)	It is uncertain whether liquidation in hog futures is finished or whether new contract lows will result in further selling.
4)	Low prices should cure low prices, and pork values certainly are low enough to stimulate demand.	4)	Lower pork cutout prices are a reflection of reduced demand. The higher slaughter pace keeps sufficient pork available to the market.

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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