DTN Early Word Livestock Comments

Cattle: Steady to Higher Futures: Mixed Live Equiv $149.54 +2.20*

Hogs: Steady Futures: Higher Lean Equiv $ 88.08 -0.70**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

General Comments:

Cash cattle activity remains quiet Tuesday with packers and feeders first priority is the major snowstorm, which has moved through most of the region over the last day. This has moved the focus away from trade negotiations early in the week, as feeders dig out and packers focus on getting access to already committed cattle. Weather conditions are likely to delay active cash cattle trade to the last half of the week, although given the underlying support in futures and beef values, feeders are expected to aggressively price cattle in order to regain basis levels lost over the last couple of weeks. Bids and asking prices are likely to be hard to pin down early in the day, although more asking prices will likely develop as the day continues, although bids may not actively surface until Wednesday or Thursday, with a late Friday trade very possible this week. The 5-Area Weekly Average price released Monday posted an average price of 109.23 per cwt. This is 29 cents per cwt lower than week-ago levels and continues to be disappointing that cash values are unable to keep pace with the support seen through the rest of the complex. Firm underlying buyer support remains well rooted in cattle futures following a bounce higher live cattle trade. Traders continue to focus on the strong technical support seen the past two trading sessions with April live cattle futures expanding the gap above $119 per cwt. Although nearby futures, which are hovering near $123 per cwt are still below contract highs set in early 2020, the ability to quickly and aggressively draw additional buyer support back into the market given new highs for the market cycle has solidified further buyer support. The ability to hold recent gains in feeder cattle futures despite the renewed buyer support moving back into corn markets. Traders remain focused on the reprieve from higher feed prices, but as buyer interest appears to be redeveloping in both corn and soybean markets, this could quickly change and limit the recent support across feeder cattle futures. Limited early activity is expected Tuesday morning with traders closely monitoring outside market shifts through the week.

Firm follow-through support developing in lean hog futures has added increased optimism to the entire complex. April futures have continued to shift steadily higher, focusing on underlying support in pork values and the expectation that additional demand support will further develop across the rest of the complex. Pork in cold storage decreased once again in Monday's report, moving to 10-year lows, as significant shifts continue to develop in pork belly cuts. Although underlying support is seen in all pork cuts, the seasonal support of pork bellies and rib cuts continues to be a main focus for lean hog futures. Despite the pull lower in the overall pork cutout value driven by a strong one day shift lower in pork belly cuts, firm buyer support is seen in all other pork cuts early in the week. The expectation is that the firm underlying tone in the market will continue to keep prices firm, although the recent price swings will bring about increased market volatility over the next few weeks as individual pork cuts will gyrate higher and lower within a wild pattern. This has been the pattern over the past few weeks and may continue most of the spring. Cash hog bids are expected $1 lower to $1 per cwt higher with most bids expected steady. Tuesday slaughter numbers are expected near 491,000 head, but this is still uncertain based on weather and road conditions through the upper Midwest.

	BULL SIDE		BEAR SIDE
1)	April live cattle futures continue to defend a strong technical price gap above $120 per cwt following increased technical buyer support flooding into the market over the last two trading sessions. This has the potential to spark renewed interest at or above current price levels.	1)	Beef products in cold storage posted strong gains once again in Monday's cold storage report. This puts overall beef inventory levels in cold storage at a three-year high and creates significant concern about the ability to keep pace with current production levels in the coming weeks and months.
2)	Cattle feeders are expected to aggressively price cattle during the week given the wide-ranging support in futures and beef values over the last week. Anything except moderate-to-strong cash market gains will be viewed as disappointing through the end of January.	2)	Corn buying has quickly redeveloped during early week trade as traders offset last week's losses. Although at this point, the buyer momentum in cattle trade associated with the previous corn losses is holding, the focus on higher production costs is expected to curb further cattle market support.
3)	Nearby lean hog futures have finally been able to break above pre-pandemic highs following the consistent and strong buyer support seen across the complex over the last few trading sessions. The ability to sustain current price levels appears to be drawing new buyer activity back into the lean hog complex.	3)	Cash hog values have been hesitant to shift higher, following the current support through the rest of the complex. The ability for packers to gain access to market-ready hogs without increasing spending could challenge recent support in futures prices in the coming days.
4)	Pork cuts in cold storage continued to aggressively decline through the month of December. Pork inventory levels in cold storage now remains the lowest level in over 10 years, creating further focus on the ability to aggressively move pork through domestic and export channels.	4)	Wide price swings in pork cuts on a daily basis based on market interest continues to add uncertainty to the entire complex. This is likely to continue over the near future but will likely limit market support based on the increased market volatility.

Rick Kment can be reached at rick.kment@dtn.com

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