DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $215.00 +$0.35*

Hogs: Higher Futures: Higher Lean Equiv: $94.56 +$1.76**

*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 are in control and will continue to command higher prices for cattle. There will be no surprise discovery of a large number of cattle that would impact the market negatively. Tightening supplies will be around for a while, giving confidence to feedlots to ask for higher prices. Packer margins are not quite as lucrative as last year or the three-year average, but they are not bad either. Traders did not wait around this week to get a better idea of potential cash and weekend demand but bought into the market more aggressively. Of the cattle purchased last week, 23% were purchased for deferred delivery. However, that will have little impact on the expectation of higher cash this week as packers have little bargaining power. Boxed beef was mixed Monday with choice up $0.88 and select down $0.39. Strong cattle prices are resulting in aggressive purchasing of feeder cattle as the outlook remains bullish.

Hogs have been somewhat opposite of cattle in that cash prices and cutouts have been struggling. Demand seems to be good both domestically and internationally, but hogs remain available. Packers were able to obtain hogs Monday, paying $0.13 less than Friday, according to the National Direct Afternoon hog report. The positive aspect of Monday was cutouts were able to gain $1.76. Packers are expected to be more aggressive Tuesday and traders may trade the higher cutout values today. However, price movement may be limited.

	BULL SIDE		BEAR SIDE
1)	New contract highs for both live and feeder cattle continue to unfold as the market remains bullish.	1)	Higher beef prices will eventually impact demand. That may have already happened internationally due to low export sales.
2)	Tighter cattle supplies will not go away anytime soon, providing solid support under the market.	2)	Feeder cattle are overbought and ripe for a correction. Futures will not continue to move higher indefinitely.
3)	Higher pork cutouts Monday may provide some buying interest in futures Tuesday. Lower pork prices compared to beef should stimulate demand.	3)	Funds are estimated to be short the market and are holding those positions with confidence due to current unexciting fundamentals.
4)	June hog futures rejected the lows and closed back above support. Buyers might step in for a short-term trade in anticipation of a bounce.	4)	April hog futures hold a premium to the index of about $5.00. This may keep upside potential limited.

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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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