DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $153.33 -0.46*

Hogs: Steady Futures: Higher Lean Equiv: $ 92.95 +1.50**

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

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

General Comments:

Live cattle futures fell back Wednesday as was anticipated due to the premium over cash and the fact that it was technically overbought. The inability of futures to hold the highs Tuesday, set the market up for selling pressure. There remains the expectation for higher cash this week, which may limit the decline. Some light trade took place in Kansas, which was steady with last week. Packers may be a bit less aggressive now that futures fell back, but feedlots may not feel the strong urge to sell due to the substantial decline of grain prices since the WASDE report. The big picture continues to show strong demand. With some light trade taking place Wednesday, there is a strong chance business will be accomplished Thursday on a larger scale.

Hogs are on fire with February, April and May leaving a minor chart gap on the opening Wednesday. Gaps generally are filled, so we can expect some lower trade at some point. February will be the one to watch as there are only two days remaining to trade the contract. Strong underlying cash may keep it from closing the gap, but a lot can happen in two days. Traders may be willing to take profits and roll to another month rather than hold for cash settlement. This would be enough to fill the gap before expiration. Another strong week of exports is expected on the weekly export sales report Thursday morning. Both strong cash and higher cutouts keep the trend up.

	BULL SIDE		BEAR SIDE
1)	Cash cattle should trade no less than steady this week, which should keep good support under the market. Strong demand will keep packers willing to pay up rather than reducing bids and end up going home empty.	1)	When fund selling is triggered in a market, it generally lasts for two to three days. Wednesday was day one. Futures weakness might be seen Thursday as increased selling interest may erupt.
2)	A futures price retracement in a bullish market is always necessary in order to relieve an overbought situation and bring buyers back into the market again.	2)	Packers may not be willing to bid more than steady prices for the week due to the decline of futures and further weakness of boxed beef.
3)	Hog futures continue to push higher in the attempt to maintain price premium while following cash higher.	3)	Hog futures are ripe for a price setback and the fact that a gap remains under the first three contracts could cause selling to surface. Traders may not want to hold onto their contracts if futures falter.
4)	Exports have remained stronger than anticipated with the expectation for another week of strong exports expected on the weekly export report Thursday morning. China demand has not been falling off as many had expected.	4)	Export demand may begin to slow as a result of high pork prices. Any slowing of exports could back up supply to the domestic market, which would not be able to absorb all of it.

Robin Schmahl can be reached at rschmahl@agdairy.com

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