DTN Early Word Livestock Comments

Cattle: Steady. Futures: Mixed. Live Equiv: $203.22 -$0.27*

Hogs: Steady. Futures: Mixed. Lean Equiv: $124.01 +$10.02**

*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:

The excitement of cash cattle trading ran its course on Wednesday with prices $2.00 higher. Cash business Thursday followed the same course leaving futures trading lethargic. Traders had some positive news from the weekly export sales report showing sales of 23,000 mt, but it was not enough to stimulate strong buying interest in futures. Feedlots are now setting their sights on next week with some apprehension due to packers already having an amount of cattle forward contracted for the next few weeks and continued weakness of boxed beef prices. Choice cuts were down $0.03 and select cuts were down $1.23. However, with strong demand and increased slaughter pace, it may not make much difference. Futures are likely to coast into extended holiday weekend. Markets are closed on Monday in observance of President's Day.

Hog futures were on fire again Thursday, pushing to new contract highs. There was no cash price released Thursday on the National Direct Afternoon report due to low volume cash trading activity, but traders could see very strong cutout prices developing, which triggered renewed buying interest. Cutouts jumped $10.02 with loins gaining $11.37 and hams up $25.22. If this is any indication of what me may see as the year progresses, fasten your seat belt. However, we know that high prices cure high prices and that a market generally falls faster than it increases. Weekly export sales of 18,300 mt were mothing to write home about, but at least there is international demand. Futures are overbought and will be watch closely by technical traders. Saturday hog slaughter looks to be around 160,000 head.

	BULL SIDE		BEAR SIDE
1)	Higher cash this week should raise hopes for steady to higher cash next week. Increase slaughter requires more animals to be purchased.	1)	Cattle futures have been consolidating. Prices are having a difficult time breaking out to the upside, which may be building stronger price resistance.
2)	Demand for feeders and calves is strong, which bodes well for later prices. Cattle feeders see tighter supplies as time progresses and are positioning themselves to supply that demand later in the year.	2)	Cattle weights have increased, possibly indicating some backup of supply. Feedlots might be anxious to move these cattle limiting cash potential in the near term.
3)	New contract highs in hog futures keeps bringing traders into the market. This provides confidence to buy even at these historically high prices.	3)	Hog futures are overbought and ripe for a price correction. Some pressure might be seen today ahead of the three-day weekend.
4)	The large jump of cutouts indicates strong demand that packers will want to fill. This will keep them aggressive in the cash market.	4)	Packers may not be very aggressive in the cash market. Three days of strong gains in futures are generally met with some profit taking, which may take place Friday.

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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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