DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $154.77 -$0.98*

Hogs: Stead Futures: Higher Lean Equiv: $ 86.26 -$0.87**

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

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

General Comments:

The trade anticipated earlier cash trading would be done this week, but such has not been the case. Packers are hoping for a break in futures or feedlots being anxious to move some cattle. Neither has happened as feedlots seem to have banded together to hold. The anticipation is for higher cash of $1.00 to $2.00 to develop, but packers have not yet given in to the idea. However, strong beef demand will need to be met and they cannot meet it if they have limited supply. Cash activity will likely take place later Thursday rather than waiting until Friday. February and April futures pushed higher Wednesday but were unable to maintain those gains. The fact that higher highs were made with later contracts closing near their highs, should provide support as bullish traders do not see any bearish threat. Strong demand and the potential for increased exports should provide good price support.

Hogs put in an impressive day Wednesday with April showing the greatest strength. The April contract has increased $3.70 over the past two days. April through December contracts posted new contract highs. February moved to the highest level it has been since early January 2020. This market is fully supported with price dips being buying opportunities. Cash is very supportive, advancing $3.50 Wednesday. Demand is very strong both domestically and internationally. There has been some market talk about increased diseases in China that could hinder their expansion. It seems they may be dealing with an increase in African swine fever as well as Porcine Epidemic Diarrhea (PED). If expansion slows, pork exports to China should remain strong.

	BULL SIDE		BEAR SIDE
1)	Feedlots seem resolved to wait for packers to bid up to purchase cattle to keep plants running full and demand satisfied. Higher cash trade is expected to surface Thursday.	1)	Cattle futures will need to push through the highs of last week or the market could be vulnerable to another price correction.
2)	Spillover support to the beef complex from the strength of hogs should provide support as markets compete for market share. Strong domestic demand and exports should have packers willing to pay more.	2)	Cold and snow are viewed as short-term bullish events, but it may also hinder consumer purchasing that may put further pressure on boxed beef prices.
3)	New contract highs in hog futures should stimulate greater buying interest by traders. The trend is up.	3)	The strength of cash for hogs may not be over, but any weakness could trigger significant selling as traders liquidate positions. Futures are quickly becoming overbought again.
4)	There has been a concern over pork exports to China slowing soon as they rebuild their herd. However, they continue to battle with diseases, which may extend the timeline of rebuilding.	4)	Hog futures could not hold their highs Wednesday. This could cause traders to lighten up on some of their positions into the weekend. Aggressive buying generally runs out of steam, by or on the third day futures, which is Thursday.

Robin Schmahl can be reached at rschmahl@agdairy.com

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