DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $207.53 -$1.25*

Hogs: Steady Futures: Higher Lean Equiv: $94.52 +$3.73**

*Based on formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. Index has been updated to depict recent changes in live cattle weights and grading percentages.)

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

GENERAL COMMENTS:

Traders had nothing to go on Monday, so some profits were taken just in case the omicron virus becomes a greater economic issue. This uncertainty will make traders nervous. This could also impact cash trading this week. Packers seem to be current without having many forward contracted. This would lend itself to the idea they will need to be more aggressive again this week. They have limited bargaining power as long as they keep a strong slaughter pace and are purchasing cattle mostly as they need them. There is anticipation cash will be at least $1.00 higher this week, but there is strong potential for more than that. The Commitments of Traders report showed funds increasing their long futures positions by 13,235 contracts to a net-long futures position of 65,461 contracts. The Federal Motor Carrier Safety Administration has extended the hours of service for livestock haulers through Feb. 28, 2022.

Hog futures rebounded in deferred months after the large decline on Friday. Unfortunately, December is testing the low as it holds close to cash with only two weeks left for the contract. Optimism is no longer an aspect of the contract as it will remain unaffected by futures potential. The National Direct Afternoon report showed an increase of only $0.02, leaving little to get excited about. Packers continue to find sufficient hogs without having to bid aggressively for them. Greater excitement stemmed from cutouts jumping $3.73, but the erratic nature of cutouts left little for traders to hang their hats on. The Commitments of Traders showed funds increasing their long futures positions by 8,429 contracts bringing their long futures positions to 55,193 contracts.

	BULL SIDE		BEAR SIDE
1)	The weakness of cattle Monday was the result of some profit-taking after a large increase. The uptrend remains intact.	1)	The omicron virus is now being indicated to be a greater threat and could have a greater impact on the economy than initially thought Monday.
2)	Cash is expected to be higher this week due to demand remaining strong and packers having limited supply forward contracted.	2)	Even though packers may not have many animals forward contracted, they may be unwilling to remains as aggressive as last week with only limited interest in bidding higher.
3)	Deferred hog contracts continue to remain strong as optimism for higher cash prevails.	3)	December hog futures are again testing the lows with limited potential for upside as the market remains in line with cash.
4)	Demand is strong with cutouts jumping significantly, led by hams.	4)	Market-ready hogs remain plentiful, leaving packers with the upper hand with no need to bid higher to obtain supplies.

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For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CDT. 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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