DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $274.98 -$0.94*

Hogs: Lower Futures: Mixed Lean Equiv: $91.41 -$0.88**

*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:

Even though cash cattle were trading no worse than steady, traders liquidated into the weekend to take some profits off the table. Traders have been positioning themselves ahead of the weekend to limit exposure and take profits on recently established positions, rather than risking unexpected news developing over the weekend. Northern dressed cattle traded steady in the North following the pattern established earlier in the week. Southern live cattle traded $4.00 higher. This may give traders the confidence to be more aggressive buyers Monday. Boxed beef prices were mixed, with choice down $2.60 and select up $1.60. The Commitment of Traders report showed fund traders increasing their net-long position in live cattle by 4,103 contracts to a total of 53,193. The funds increased their net-long position by 161 contracts and are now net long 8,166 contracts.

Hogs bounced from contract lows as traders did not want to push the market lower into the weekend. Traders took profits on recent short positions rather than pressing the market much lower into the weekend. It is uncertain whether traders will renew selling to begin the week or if they may not press the market much lower. The National Daily Direct Afternoon report showed cash up $0.30 as packers needed to finish up their purchases for the week. However, further strength in futures may be limited due to pork cutout values declining $0.81. The Commitment of Traders report showed the fund traders as net sellers of 8,495 futures contracts, increasing their short positions to a record net-short position of 50,635 contracts.

	BULL SIDE		BEAR SIDE
1)	Steady to higher cash trade last week should provide support to cattle futures as packers need cattle.	1)	It is difficult to determine whether packers will be willing to bid higher for cattle.
2)	Cattle futures hold a discount to cash, which is likely to be reduced as the month progresses.	2)	The weakness of boxed beef last week may limit what packers will pay for cattle. They need to protect their margins.
3)	The funds are holding a record short position in hog futures. Any supportive fundamental news could trigger significant short-covering.	3)	The bounce in hog futures on Friday may be only that -- a bounce with weakness continuing.
4)	If hog futures can hold the recent lows, traders may have more confidence to buy into the market for the long term.	4)	Packers continue to have a plentiful supply of hogs available for purchase, leaving them less aggressive.

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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