DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $200.85 +$0.55*

Hogs: Higher Futures: Mixed Lean Equiv: $89.00 +$0.69**

*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:

Both February and April live cattle contracts made new highs with February gapping higher on the open. It is a bit unusual for the front-month contract to leave a gap with two weeks left to trade as price will generally hold close to cash and wait for cash to develop before moving. This clearly shows some optimism for this week. The large volume of cattle purchased last week allowed packers to obtain 25% of those purchases for deferred delivery. This puts them in a better position this week, allowing them maybe to be less aggressive. Boxed beef was higher with choice up $0.29 and select up $1.92. Boxed beef has been showing strength the past few days, indicating demand remains strong.

Hogs found strong buying interest Monday, but not from higher cash. It seemed the catalyst was the announcement of African Swine Fever (ASF) on a farm in Hong Kong that is near the border to China. An announcement of ASF is always good for a bullish reaction in the markets, even if it may not have an overall impact. The February contract closed slightly lower as it converges to the index with Tuesday being the final day to trade the contract. April will take over as the lead month holding a nearly $11.00 premium to February. Strong fundamental support will need to develop to maintain the premium.

	BULL SIDE		BEAR SIDE
1)	The gap higher in February and new contract highs in both February and April live cattle are technically bullish, keeping traders confident in holding long positions.	1)	Packers were able to defer some purchases last week with the amount of cattle obtained. This may put them in a better position to hold the line on cash this week.
2)	Boxed beef seems to have found support with higher prices the past few days.	2)	The gap left in the February contract will likely be filled over the next two weeks before the contract finishes trading. If cash trades steady this week, this may be accomplished.
3)	ASF discovered in Hong Kong was the catalyst to trigger strong buying in hog futures Monday and may carry over into Tuesday.	3)	The knee-jerk reaction to the announcement of ASF on a hog farm in Hong Kong may be temporary with the market weakening if no further cases are discovered.
4)	Packers are expected to be more active in the market Tuesday, paying more for hogs to purchase for the week. Higher cutouts Monday may also provide some support.	4)	Cutouts continue to search for solid support, being unable to find consistency with gains. Pork supply remains plentiful.

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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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