DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $181.31 +3.26*

Hogs: Steady Futures: Mixed Lean Equiv: $113.48 -0.95**

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

(The Live Cattle Equiv. 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:

Live cattle futures just could not generate the same strength Tuesday as they did on Monday. It certainly was not because of lower boxed beef prices as they exploded higher. It was because of a disappointed cash trade as nothing happened. It was more technical in nature. June and later contracts could not break through to new highs. Traders may keep the market trading sideways through the rest of the week as they wait for cash, and due to it being a holiday-shortened week. The stiff premium April futures are holding to cash may keep a lid on further upside price potential in the near term, but there still is plenty of time for stronger cash to develop as packers need to purchase cattle and will need to bid up to get them. Feedlots have set their offers quite a bit higher at $118 to $120 in the South and $192 in the North. Dressed cattle weights have been sliding a bit with last week's weights $4.00 below the previous week and 42 pounds below a year ago. It will take more cattle to satisfy demand.

Hog futures performed very well Tuesday with June and July contracts making new highs. So far, it has been a good week, technically. Futures contracts closed the chart gaps on Monday and then pushed higher Tuesday. Lower cutouts and cash Tuesday did not deter the bullishness of traders and positive fundamentals of the market. Packers may hold back the rest of the week to get a good handle on supply and demand after the holiday. However, tightening supplies are a concern and may continue to push prices higher after some stability this week. Hog slaughter last week was down 8.2% from a year ago with pork production down 7.2% from a year ago. Second quarter supplies are expected to tighten and possibly be the tightest of the year.

	BULL SIDE		BEAR SIDE
1)	Cutouts exploded higher Tuesday indicating continued strong demand. Packers will aggressively look to obtain cattle to meet the demand.	1)	Cattle futures could not push higher even though boxed beef jumped and cash looks to trade higher. Higher prices may already be factored in.
2)	Feedlots are asking higher prices feeling confident they will get them. Spring demand may be stronger than expected.	2)	Futures hold a large premium to cash and may hold until cash catches up, reducing the premium.
3)	June and July hog contracts made new highs after closing chart gaps. This makes for a strong market, technically.	3)	Packers may hold back now that cutouts gains have slowed recently. Holiday demand is finished, and packers may wait to see demand strength over the next week.
4)	Even if futures drift sideways for the rest of the week, there is strong underlying support.	4)	Some profit-taking may unfold Wednesday due to it being the end of the month and end of the quarter.

**

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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