DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $155.75 +$0.27*

Hogs: Steady Futures: Higher Lean Equiv: $ 87.13 -$1.56**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

General Comments:

Traders defended support Tuesday with April posting a triple-digit gain. This strength was a bit of a disappointment to packers as it will give confidence to feedlots to hold for higher prices. Asking prices for cattle are anticipated to be $1.00 to $2.00 higher this week. Bids will likely surface Wednesday, but trading activity may remain light, if at all. Packers are expected to be more aggressive this week as they need cattle. The strength of futures should carry over Wednesday as contracts closed near the highs. The technical correction may have been complete with traders willing to buy futures in anticipation of higher cash and continued strong beef demand.

Hog futures exhibited an impressive day Tuesday as spreads were unwound pushing contracts through price resistance. February through December closed at new contract highs. The recent dip of futures caught the attention of technical traders who saw it as a buying opportunity. Supportive cash leaves traders willing to add to long positions. Snow and colder weather is moving across areas of the country, which will slow the movement of hogs and thereby also provide temporary weather support to the market. Perhaps that is why packers were aggressive with purchases Tuesday.

	BULL SIDE		BEAR SIDE
1)	Higher futures might cause packers to bid higher as they sense feedlots will hold for better prices. Feedlots will feel more confident as higher offers will be supported by futures.	1)	Feedlots may be holding back cattle in the anticipation of higher cash. Those cattle will need to come to the market soon or feedlots will be losing money. This may limit cash potential.
2)	The overbought situation on futures has been rectified leaving traders willing to buy into a market that has been trending higher. Strong demand should keep beef prices supported.	2)	Futures may try to test the recent highs but may have a difficult time pushing through. The premium to cash may cap price potential in the near term.
3)	Closer hog contracts did an about face pushing to new highs with later contracts following suit. This should trigger more buying as traders anticipate the next leg up. Bearish fundamentals are few and far between.	3)	Hogs have had a great run, but futures may have run too far on the strength of cutouts rather than cash.
4)	Winter weather should slow hog movement possibly reducing supplies for a short term. That is all traders need in order to extend the gains seen Tuesday. It will be up to cash to hold those gains.	4)	There is concern whether strong exports will continue. If exports slow, traders may be quick to liquidate futures as domestic supply could begin to increase.

Robin Schmahl can be reached at rschmahl@agdairy.com

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