DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $204.02 -$3.51*

Hogs: Higher Futures: Higher Lean Equiv: $93.51 -$1.01**

*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:

Tuesday was the second day of long liquidation as the uncertainty surrounding the omicron virus variant and its impact on demand has traders taking profits or limiting losses. The market had been overbought and in need of a price correction on its own, but the news surrounding the omicron virus variant triggered further liquidation. In the long run, it should not have much impact as we can well remember the increase in demand for meat last year. However, boxed beef prices plummeted Tuesday with choice down $5.90 and select down $1.73. That may leave packers a bit more on the defensive this week. They may still need to increase cash bids to procure cattle, but they may not be as aggressive as last week. There continues to remain a strong demand for feeder cattle as prices for calves and feeders were strong Tuesday.

Hog futures showed the evidence of spread trading as December needed to increase following stronger cash while later contracts felt pressure from the outside markets and uncertainty surrounding demand. Cash finally made a nice increase with the National Direct Afternoon report posting a gain of $1.45. This was offset to some extent by the decline of cutouts of $1.01. The recent outbreak of African swine fever in Vietnam that is spreading may provide some underlying support to the market in the hopes of greater export opportunity.

	BULL SIDE		BEAR SIDE
1)	Cattle futures continue to remain in an uptrend even though there has been a significant price retracement.	1)	Cattle prices may be near their peak through the end of the year with the market already anticipating a slowdown in demand.
2)	Demand should remain strong despite the concern surrounding the omicron virus variant. Lower boxed beef prices should increase consumption and cause consumers to stock up on meat again.	2)	The large decline of boxed beef Tuesday may indicate a demand concern at current levels. Lower prices may be needed to retain the current level of demand.
3)	A triple-digit increase in cash Tuesday may bode well for the market as packers intend to purchase hogs sooner rather than later in advance of the holidays.	3)	Packers were more aggressive in their quest to purchase hogs sooner rather than later and were willing to open the checkbook. That may limit buying interest later in the week.
4)	The overbought market has been corrected with the outside markets higher again Wednesday. This could increase buying interest at the lower prices.	4)	More positive news needs to surface and the market-ready supply of hogs needs to decrease in order to turn the trend back up again.

**

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

(c) Copyright 2021 DTN, LLC. All rights reserved.