DTN Early Word Livestock Comments

Cattle: Higher. Futures: Higher. Live Equiv: $199.14 -0.80*

Hogs: Higher. Futures: Higher. Lean Equiv: $116.11 +$1.33**

*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 anticipate further cash strength this week for cattle and are keeping support under the market. It is uncertain what packers will do as they continue to see weaker boxed beef prices whittling away at profits. Yet, they still have profit, and demand is strong, which leaves them wanting to fill that demand. It would be a huge disappointment if cash cannot trade higher this week. However, it will be up to feedlots to hold out in the face of significantly higher feed prices. Boxed beef was mixed with choice down $2.45 while select increased $1.80. This moves the market into an inversion with choice $2.00 lower than select. This is a rarity with the last time boxed beef was inverted was in May 2018. Total beef in inventory in January was 525.4 million pounds, up 19.3 million pounds or 4 percent from December. The Commitment of Traders report showed funds as net buyers of 4,219 live cattle futures bringing their net long total to 86,061 contracts.

There just in no stopping the hogs with traders trying to pick a top getting run over on almost a daily basis. However, with strong cash, there is no other way to go. Higher grain prices are having no impact on the market. Financial markets are having no impact on the market. It is like futures are in a vacuum being continually sucked higher. Futures are overbought, but that is meaningless in a fundamentally bullish market. The National Direct Afternoon Hog reports showed cash up $6.77. Packers may lose some of their aggressiveness but only after they have sufficient supply purchased for the week. Weaker cutouts had no impact on the market as they have been choppy from one day to the next anyway. Total pork in cold storage reached 428.5 million pounds, up 32.0 million pounds or 8%. Bellies in storage totaled 44.6 million pounds, up 6.5 million pounds or 43% higher than a year ago. The Commitment of Traders report showed funds as net buyers of 570 contracts bringing their total net long positions to 79,242 contracts.

	BULL SIDE		BEAR SIDE
1)	Lower showlists may spur packers into being more aggressive to purchase what they can earlier rather than later.	1)	Continued weakness of boxed beef does not bode well for higher cash. The inversion of the choice and select price spread may indicate price resistance for higher end cuts of beef.
2)	Live cattle held in anticipation of higher cash in the face of strong feed prices and defying the pressure from weak feeder cattle futures.	2)	Cattle futures continue to test the low end of the trading range. If cash does not trade higher this week, futures could fall through support quickly.
3)	New contract highs in hog futures keeps the uptrend intact with the rise of prices seemingly gaining momentum. Traders are confident strength will continue.	3)	Hogs are overbought technically and anything that could trigger selling might result in a substantial price retracement.
4)	Packers are scouring the country for supply to meet strong demand and increased slaughter pace. Demand has not yet reached price resistance.	4)	April hogs are trading at a huge premium to cash of over $14.00, which may be a tall order to fill. The five-year average premium is $2.56 for this time of year.

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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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