DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $205.06 +$0.32*

Hogs: Lower Futures: Mixed Lean Equiv: $88.40 -$1.05**

*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:

Packers won the standoff last week with cash cattle trading lower. This was a surprise to many, but it should not really have been. Boxed beef prices declined most of the week possibly indicating consumers have reached a threshold. Of course, one week does not indicate there has been a major change in trend, but it does increase the caution of traders. Feedlots decided to let their cattle go for $1.00 lower in the South and $2.00 lower in the North deciding not to hold them over for another week. The volume of cattle purchased will be interesting to see as some would have been purchased for deferred delivery. Boxed beef could not find the support it needed with choice down $0.87 and select down $0.12. Monday showed choice up $0.81 and select down $0.34. Packers will not be anxious to post bids early in the week. Traders will be thinking of the upcoming Cattle on Feed report on Friday. The Commitment of Traders report showed funds increasing their long futures positions by 6,934 contracts bringing their net long futures positions to 91,803.

Hogs only managed a mixed close even though cutouts finally showed some strength. The positive aspect of the day was the rejection of the lows with short covering and buying interests taking place. Once it looked like cutouts finally showed some promise, futures began climbing. Cutouts closed the day up $2.31. Cash did not support the strength keeping a lid on price movement as the National Direct Afternoon Hog report showed a decrease of $0.80 on Friday and down $0.63 on Monday. The cutout values on Monday showed a return to weakness with the carcass price down $1.05. With cash continuing to show weakness and the index following suit, there is little upside potential. However, that can change as slaughter pace remains strong. The Commitment of Traders report showed funds reducing their long futures by 28,071 to a net long futures position of only 21,437 contracts.

	BULL SIDE		BEAR SIDE
1)	Even though cash cattle traded lower this week, futures held well and closed higher for the week. Traders retain their optimism over the long-term strength of the market.	1)	Cattle futures may have run out of steam and may settle back if the weakness of boxed beef continues.
2)	Strong slaughter pace will require cattle to be pulled forward to meet packer demand. This may keep supplies current and tight.	2)	The WASDE report indicated grain prices may continue to remain high leaving feedlots less apt to hold onto cattle longer than needed. Holding cattle will increase costs and may not be beneficial.
3)	Pork cutouts may have found support as consumers may be increasing their desire for lower-priced meat.	3)	February hogs continue to hold a premium to cash and the index. This may limit its upside potential. Packers have no difficulty obtaining the hogs they need for slaughter.
4)	Hog futures are oversold and ripe for a technical bounce. The combination of being oversold and finally higher cutouts could trigger short covering.	4)	Cutouts on Monday were down $1.05 offsetting some of the gains from Friday and keeping pressure on the market.

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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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