DTN Early Word Livestock Comments

Cattle: Steady Futures: Lower Live Equiv: $207.16 -$2.98*

Hogs: Lower Futures: Higher Lean Equiv: $91.63 +$90.34**

*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:

The strength of the December contract going off the board permeated through the cattle market Tuesday, led by the February contract. The discount it was holding to cash and the December contract was nearly made up Tuesday as traders became aggressive in the entire cattle complex. Deferred live cattle contracts were not as strong, but showed nice gains. Feeder cattle showed consistent gains throughout the year. There was no indication of cash potential this week with bids and offers not yet established. The anticipation is packers will need to be more aggressive to obtain the cattle they need. Most of the cattle they purchased last week were for nearby delivery, which means they need cattle to keep sufficient supply for slaughter. The negative aspect of the market was the large decline in boxed beef prices. Choice fell $5.37, while select declined $1.47.

Hogs fell through price support, making new contract lows. The movement was technically driven with stops triggered once futures broke through support. Hog futures seemed to be more influenced by many of the other commodities that suffered declines Tuesday. Cash was higher with the National Daily Direct Afternoon Hog report showing a gain of $1.56. Cutouts also showed a gain of $0.34. That may provide some support to futures prices Wednesday, but it will take consistent gains to turn the market higher. The previous contract lows will now be price resistance that may limit upside potential technically.

	BULL SIDE		BEAR SIDE
1)	The February live cattle contract still has more upside before moving to the level where December closed out.	1)	The decline of boxed beef and the large decline of choice cuts may put some pressure on the market as movement over the holidays may not have been as good as anticipated.
2)	Packers seem to be a bit short-bought, which may result in them being more aggressive with their purchases this week. Feedlots will hold for higher cash.	2)	The cattle market will need further fundamental strength to result in the market establishing an uptrend. Boxed beef has been in a downtrend.
3)	The decline of hogs may have been more of a knee-jerk reaction to the pressure in other commodities. Futures could rebound Wednesday.	3)	The previous contract lows in hog futures will now be price resistance. Demand has not been sufficiently stimulated even with lower prices.
4)	Higher cash and cutout prices should provide some support as retail needed to stock up after the holidays. Further cash strength is possible Wednesday.	4)	The amount of hogs available to packers on a weekly basis leaves them less aggressive as they have sufficient supply to choose from. Cash continues to trend lower.

**

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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