DTN Early Word Livestock Comments

Cattle: Steady Futures: Higher Live Equiv: $217.53 -$0.54*

Hogs: Higher Futures: Mixed Lean Equiv: $95.20 -$0.19**

*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 focus of the trade Friday was the Cattle on Feed report, which has been notorious for at least one surprise. That did not materialize this time as the report was neutral with numbers pretty much right in line with the trade estimates. On feed numbers on Jan. 1 were 102% with the estimate at 102.2%. Placements in December were 95.5% compared to the estimate of 95.4%. Marketed in December was 99.0% compared to the estimate of 99.3%. It is refreshing to see a report in line with the estimates which will leave trading activity to fundamentals rather than knee-jerk reactions. Most of the cash cattle trade last week took place at $173 live and $274 dressed. There were a few live trades at $175, but that was the exception. Boxed beef prices closed lower with choice down $0.79 and select down $0.71. Slaughter should get back on track again, which may result in more aggressive packer demand. The Commitment of Traders report showed the funds reducing their long positions by 901 contracts, bringing their net-long positions to 13,410 contracts. Funds were net buyers of 727 feeder cattle contracts, reducing their net-short position to 1,737 contracts.

Hog futures traded in a narrow range Friday with little to provide price direction. The National Direct Daily Afternoon Hog price declined by $1.42, the largest price movement of the week. This may have more of an impact on trading Monday as slaughter will be getting back on track with a sufficient supply of hogs available. The packers may not need to be as aggressive this week. Cutouts declined $0.17 to $88.56. There does not seem to be sufficient support to push futures above technical resistance. Demand will need to increase to see prices trend higher. The Commitment of Traders report showed fund traders as net buyers of 4,795 futures contracts, reducing their net-short position to 2,099 contracts.

	BULL SIDE		BEAR SIDE
1)	The Cattle on Feed report was neutral, which may keep support under the market. Even though it was neutral, placements were 4% below a year ago.	1)	Cattle slaughter getting back on track again may result in lower boxed beef prices as retail shelves will be replenished.
2)	The slow uptrend is expected to continue, supported by packers who will need to purchase cattle to both get slaughter back on schedule and to purchase cattle ahead.	2)	Cattle on feed numbers 2% above a year ago and marketings 1% lower may keep a lid on upside price potential in the near term.
3)	Hog buyers may be more aggressive early in the week as they want to obtain the hogs they need as slaughter gets back on track after the adverse weather.	3)	Hog futures may have a difficult time pushing above price resistance with the current market fundamentals.
4)	Hog weights were lower last week, which may be the overall trend for a period.	4)	Hog supplies continue to remain plentiful, leaving packers less aggressive once they have sufficient numbers purchased for the week.

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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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