DTN Early Word Livestock Comments

Cattle: Steady. Futures: Mixed. Live Equiv: $204.23 -$1.97*

Hogs: Steady. Futures: Higher. Lean Equiv: $114.19 -$1.26**

*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:

Live cattle did not receive any direction from cash Tuesday, yet futures pushed higher in the attempt to regain the losses from the previous two days. Traders feel cash will be no worse than steady this week due to the strong slaughter pace and the need for packers to obtain animals and maintain that pace. However, packers continue to battle with lower boxed beef prices. Tuesday, choice cuts were down $3.59 with select down $0.93. This may keep packers less aggressive even though they may need to purchase a greater volume of cattle. Corn futures may have declined significantly Tuesday, but price remains near the highs and did not really changing feed costs. This may result in feedlots wanting to move cattle as holding out may not improve profitability. Some cash activity is expected to surface Wednesday. The winter storm will impact movement and reduce feeding efficiency.

Hogs regained some of the losses of the previous days propelled higher by strong cash, tightening supply and the winter storm that will impact movement. The National Direct Afternoon Hog report showed an increase of $2.90. It is possible packers may not be as aggressive today depending on the volume of hogs purchased Tuesday, which may temper some trade exuberance. However, slaughter pace is increasing, and hogs are needed to continue that pace. The powerful winter storm is expected to hinder movement which may result in higher cash. Cutouts were down $1.26 with the weakness having limited impact on the overall market.

	BULL SIDE		BEAR SIDE
1)	Strong slaughter pace will keep packers aggressively looking for cattle with cash anticipated to be no worse than steady this week.	1)	Traders anticipate stronger cash cattle this week due to higher slaughter pace a good demand. Steady money or anything less could trigger selling of futures.
2)	The winter storm may hinder cattle movement resulting in packers potentially paying more to ensure cattle will be delivered to keep slaughter pace strong.	2)	Live cattle futures seem to be establishing a sideways trading pattern which could limit further upside potential.
3)	Higher cash Tuesday provided support to hog futures as optimism remains strong.	3)	Hog futures still have chart gaps substantially below current prices. These gaps are a concern for technical traders even though the trend is up.
4)	Traders continue to buy the break as the trend remains higher. Slaughter pace has increased, and tighter supply of hogs is expected as the year progresses.	4)	There are sufficient hogs to keep a strong slaughter pace, which may limit cash potential for the time being.

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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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