DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $153.16 -0.02*

Hogs: Higher Futures: Mixed Lean Equiv: $ 94.49 -0.47**

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

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

General Comments:

Traders were not shy about pushing April and later live cattle contracts to new highs to end the week. Futures gave the impression earlier in the week that a peak might have been reached, but it turned out only to be a price correction in a bullish market. Cash cattle were lightly traded with feedlots only squeezing $1.00 out of the packers, but that did not phase traders. They had already set their sights on this week's trade, expecting packers will need to step up to the plate and purchase cattle to satisfy strong beef demand. Even the slight decline of boxed beef over last week was viewed as temporary. Feedlots have been in the driver's seat and have held out. However, cattle continue to consume feed and the combination of higher grain prices and limited weight gain in the extreme weather is not making any money. Feedlots will be asking the question whether they want to hold for higher prices or market on profitability. It is unlikely any cash activity will take place Tuesday, but one would think it would take place earlier than it has the past few weeks.

April is now the front-month hog contract, but that should not have a significant impact on trading. The difference is that there is now a large premium to cash in the front month. With the bullishness of hogs, that large difference may not be of any concern. Strong demand from both the domestic and international market should keep price supported. So far, demand has not slowed down as a result of higher prices. Packers should continue to remain aggressive and generous as they need to keep store shelves supplied and export orders filled. There is no sign of a top in the market. Even though the export sales report showed a decrease from the previous week, China again was the largest buyer.

	BULL SIDE		BEAR SIDE
1)	The move to new highs Friday will keep fund traders friendly to the market. Higher cash is expected with futures pointing the way.	1)	The disappointment of not getting more than $1.00 higher cash last week may indicate that packers may be near a price threshold. Boxed beef was lower for the week, which is cause for concern.
2)	Feedlots have been winning the price battle seemingly banding together to push packers into paying higher prices. Packers cannot continue to wait until the last few hours of the week only to have to pay more. They may be more aggressive earlier this week.	2)	The jumped of cattle futures may have been due to aggressive short-covering into a three-day weekend rather than traders adding to their long positions.
3)	The surge of hog futures on Friday does not give the impression price may have increased too far, too fast. If anything, they may not be gaining fast enough based on strong demand. Weather is hindering movement.	3)	Hog futures are pushing the extreme boundary of some technical indicators. Futures are overbought with a relative strength index of nearly 90 in the April contract. This may not last.
4)	Packers are expected to begin the holiday-shortened week more aggressively as demand needs to be met and margins are good.	4)	Weekly pork exports were the lowest they have been since the Jan. 7 report, which could indicate price is becoming too high. Any further slowing could trigger lower cash and futures.

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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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