DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $154.09 +$1.28*

Hogs: Steady Futures: Higher Lean Equiv: $91.39 +1.95**

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

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

GENERAL COMMENTS:

Sellers got their wish of higher cash on Friday, but that did not come without a fight. Overall cash trade was light, but a good $3.00 higher. However, packers were not going to give in easily, turning to the cull cow market aggressively to make up some of the difference in fed cattle numbers. The pattern is not likely to repeat itself this week. Packers may need to come to the terms with higher cash earlier this week to obtain a desired number of cattle. Feedlots will be resolved to hold for nothing less than Friday's higher prices. Boxed beef prices continued to increase from strong demand. If packers slow chain speed due to their not wanting to purchase cattle at higher prices, it could further tighten supply, pushing boxed beef higher. This would give confidence for feedlots to continue to hold for higher cash. Feedlots see no reason for the need to dump cattle, even though weights are high for this time of year. The concern for feedlots is the continued escalating feed prices, which may increase the need to remain current with marketing.

Hog futures holding well on Friday might be an indication that dips will be buying opportunities. This idea is supported by higher cash and stronger cutouts. Export sales for the week ended Jan. 21 totaled 52,855 tons, the highest weekly amount since Dec. 24. China continues to purchase significant volumes of pork. Traders are keeping their ears open in reference to the talk of African Swine Fever in China. Packers may step up to the plate to procure needed supply this week. Futures are expected to resume the uptrend.

	BULL SIDE		BEAR SIDE
1)	Higher cash cattle last week should cause feedlots to offer cattle higher. Strong boxed beef prices and good demand should push packers to be more aggressive earlier in the week.	1)	Feed prices continue to increase, cutting into feedlot profits if cattle are held too long. Packers may be willing to pay the higher cash price of last week but expecting more may be unproductive.
2)	Even though cattle futures dropped Friday, they still hold a premium to cash, which may provide confidence for feedlots to be unified to hold for higher prices.	2)	Cattle futures put in an outside day with prices closing significantly lower. February closed at the lowest level since Jan. 5. Traders may be willing to lighten long positions.
3)	The technical action in hog futures Friday may result in greater buying interest by traders Monday. The trend is up and a dip in futures may be viewed as a buying opportunity.	3)	Technically, hog futures remain overbought. A further retracement of futures is a strong possibility
4)	Strong pork cutouts should keep cash steady to higher. Packers should keep bids no worse than steady as they look to gain ownership of hogs to meet demand.	4)	Despite continued strong exports, cumulative sales continue to run below the same period a year ago. Domestic demand will need to increase to keep prices from running out of steam.

Robin Schmahl can be reached at rschmahl@agdairy.com

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