DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $209.81 +$3.23*

Hogs: Higher Futures: Lower Lean Equiv: $94.14 -$1.90**

*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:

Even though cash cattle are expected to trade higher due to strong boxed beef and higher slaughter pace, the market could not shake the spillover pressure from the outside commodity markets. Traders will likely regroup Thursday as pressure subsides and traders absorb the news. Strong boxed beef prices should keep packers aggressive as they want to meet that demand by keeping a strong slaughter pace. A cash price of $3.00 to $5.00 higher last week might be matched again this week. Cash is not expected to trade Wednesday. Boxed beef was higher Tuesday with choice up $4.97 and select up $3.70. This indicates demand remained strong through the end of the year. The impact of the winter storm over Christmas has not completely been assessed, but there has been death loss as well as reduced cattle performance. Feeder cattle did not respond to the significant loss of corn futures, which is a cause for concern.

Hogs followed a similar pattern with selling dominating the action. The February contract moved to the lowest close since Dec. 22 as the premium over cash was more than necessary. The anticipation of higher cash just is not materializing yet, even though supplies of hogs are expected to tighten as the year progresses. The market will need to prove itself before traders get excited over price potential. The National Direct Afternoon Hog report showed cash down $0.70 while the cutout values declined $1.90. This does not bode well for price potential. It seems holiday demand has not been as stellar as had been anticipated.

	BULL SIDE		BEAR SIDE
1)	Strong boxed beef prices should provide support to the market. Demand was good through the end of the year.	1)	Feeder cattle were unable to post gains despite the weakness of corn. The weakness could continue Wednesday if live cattle remain under pressure.
2)	Feedlots will hold for higher cash as they see packers need cattle and will pay up to get them to fill the demand.	2)	Higher beef prices may begin to slow demand as consumers grapple with high food prices.
3)	Cash hogs should trade higher as it is midweek, and packers need to procure the amount needed for the current slaughter pace.	3)	Cutouts remain unable to find support as strong slaughter pace and average demand keeps plenty of pork available.
4)	Hog futures rebounded off their lows Tuesday, suggesting buying interest was uncovered as traders felt the weakness was overdone.	4)	Packers continue to find sufficient hogs without difficulty. They have little need to be aggressive.

**

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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