DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $276.30 +$2.80*

Hogs: Higher Futures: Higher Lean Equiv: $95.94 +$1.93**

*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:

Traders reacted to the lower placements on the Cattle on Feed report. Some had thought that higher on-feed numbers and lower marketings would offset lower placements. However, traders generally react based on which side of the estimates the actual numbers fall. The reaction was violent, as futures gapped higher and short covering was triggered. There will likely be follow-through strength today, with prices potentially retesting the recent highs, but caution will be exercised as chart gaps generally are filled. Boxed beef was higher on Monday, with choice up $4.41 and select up $2.51. If the strength of boxed beef continues, a case could be made for higher cash trade this week.

Hog futures seemed to be beneficiaries of the strength in cattle. There was little reason for futures to increase on Monday other than the market being oversold. A higher open and stronger morning pork cutout values added to the support. Pork cutout values finished the day up $1.93. The National Daily Direct Afternoon Hog report did not share the same sentiment as the rest of the complex, with the weighted average price falling $1.41 to $80.35. The upside price potential may be limited unless further support in both cash and cutouts unfolds. The packers are expected to bid higher for hog today, but they are not expected to be aggressive.

	BULL SIDE		BEAR SIDE
1)	Follow-through buying should continue as further margin liquidation may take place. Traders held too many short positions into the report.	1)	There is no indication that packers will aggressively purchase cattle at higher prices just because futures may increase for a few days.
2)	Technical traders may try to push the cattle futures to the previous highs before the current strength runs its course.	2)	The gap left in cattle futures on the opening on Monday may be filled at some point.
3)	Hog futures may have been the recipient of spillover trade with the market now correcting from being oversold.	3)	Cash hogs did not follow the futures higher. The strength may be short-lived if the packers do not need to aggressively purchase hogs.
4)	Hog slaughter remains at a strong pace and higher than a year ago. This indicates demand is good.	4)	The fundamentals lack consistent support, which may limit the upside price potential.

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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