DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $202.07 -$0.65*

Hogs: Higher Futures: Higher Lean Equiv: $116.91 -$0.72**

*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:

Feedlots were hoping to capitalize on both the higher cash and stronger futures of last week. However, those hopes were trimmed Monday due to substantially higher corn futures and lower cattle futures. Showlists indicate higher offerings this week, which may leave packers unwilling to bid higher. The resolve of feedlots will be tested as it looks like feed prices are not going to become less expensive and holding onto cattle any longer than necessary may be a losing proposition. More market-ready cattle are expected to hit the market in May and early summer, which may limit upside price potential. Cutouts were mixed Monday with choice down $1.54 and select up $0.56. The Commitment of Traders showed funds as net sellers of 766 contracts, bringing their net-long positions to 39,498 contracts.

Hog futures were higher right from the start Monday as traders bought aggressively. There seems to be a renewed interest in buying the hogs after Easter in anticipation of increased demand. This buying resulted in June and July contracts closing the chart gaps that remained from the beginning of the month, thus negating the island top that had been in place. The strength of futures was not supported by cutouts, which were down $0.72. Cutouts will be the key to sustained higher prices. Cumulative exports sales of pork so far this year are running 230,787 metric tons (mt) below the same time last year, causing concern over price potential. The Commitment of Traders report showed funds reducing their long position by 3,074 contracts, bringing their net-long positions to 54,675 contracts.

	BULL SIDE		BEAR SIDE
1)	Packers needed cattle last week and paid up to get them. The same may hold true this week as demand remains strong.	1)	Grain prices are not expected to decline for the foreseeable future, which will keep the cost of production high and feedlots aggressively moving cattle.
2)	Even though corn prices jumped Monday, feedlots were encouraged with higher cash last week and will hold for higher cash this week.	2)	More cattle are expected to be coming to the market next month with futures already anticipating lower cash. The discount will hold unless proven otherwise.
3)	The jump in hog futures Monday eliminated the island top, which could provide more confidence for traders to buy into the market.	3)	The strength of hog futures Monday was not supported by cutouts. Chart gaps were filled on the upside, which may result in futures stalling as traders assess price premiums.
4)	There is a strong premium over cash with traders willing to increase that premium in anticipation of tightening hog supplies and much higher cash.	4)	There remains a large premium to cash in the May contract, which may be a tall order to fill over the next month.

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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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