DTN Early Word Livestock Comments

Cattle: Higher Futures: Lower Live Equiv: $156.29 +1.95*

Hogs: Steady Futures: Lower Lean Equiv: $ 95.28 -0.54**

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

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

General Comments:

Cattle futures took a hit Wednesday as the market may have played the weather card long enough. Yes, there are a few plants that have shut down through Thursday due to concern for their employees as well as the shortage of natural gas. However, the market has been trending higher the past month, putting plenty of extra price premium in futures. Even with lighter cattle movement expected and higher cash prices expected, packers may have reached their threshold. The disruption will cost them money as they attempt to make up for lost production after the storm system moves through. Packers have not yet posted bids, but it would not be surprising if most will bid steady prices. It does look like it will be another nail-biter week as business may come down to the wire. Packers will want cattle due to strong boxed beef prices, but it may be another week of lighter purchases than desired. Cattle weights may suffer for a period as a result of the adverse weather, requiring more animals to fill the demand.

Hogs may have hit the proverbial ceiling in the April contract as Wednesday was the second day of a lower high after the peak on Friday. Now that there was some significant selling of futures, the market might continue to correct from its overbought status for another day. Cutouts declined, adding to the caution of traders. Packers have been able to procure a good amount of hogs, which may keep cash price steady the rest of the week. Farms will be willing to move hogs and get current as the adverse weather subsides, leaving plenty for packers to purchase. Projected Saturday slaughter is 254,000 head. The Commitment of Traders report for the week ended Feb. 9 showed funds net long 56,176 contracts, the highest in nearly two years, making the market ripe for fund liquidation even though fundamentals are friendly.

	BULL SIDE		BEAR SIDE
1)	Feedlots seem to be determined to hold out for higher cash. Some of this might also be due to the adverse weather putting marketing on the back burner.	1)	Feedlots may be willing to move cattle that may be backed up. Continuing to feed them is costing money and now weights may be lighter. They may be willing to do business at a steady price.
2)	The futures price correction did not do any chart damage with the uptrend remaining intact. Traders will remain friendly to the market due to the idea packers will need to make up for lost business and will aggressively purchase cattle.	2)	Fund selling many times lasts for two to three days and this is day two. There is more room to retrace, even in a bull market, as some traders lighten their positions in hopes of buying back in at a lower price.
3)	Hog futures have had short-term price dips since the beginning of January with the weakness Wednesday possibly being another one before resuming the higher trend.	3)	The ability of packers to purchase a significant volume of hogs even during adverse weather indicates the need for farms to move hogs. Lower cash prices could develop over the next few days.
4)	Demand is strong and lighter slaughter due to the adverse weather should keep packers aggressive as they will want to make up for reduced processing schedules.	4)	Futures were due for a significant price correction and weakness the rest of the week may accomplish that task.

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For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CST. 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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