DTN Early Word Livestock Comments

Cattle: Steady Futures: Mixed Live Equiv: $199.33 -$0.28*

Hogs: Steady Futures: Lower Lean Equiv: $113.21 -$5.49**

*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:

Both live and feeder cattle futures gapped lower on the open Monday and did not recover. The surprise of placements in the Cattle on Feed report sent the market reeling. April live cattle futures finish trading on Friday and are now holding a discount to cash. However, cash trade has not yet been established for the week. There seems to be some indication of packer interest developing early again this week and potentially at higher prices. However, the weakness of futures and increasing corn prices may have packers attempting to use that as leverage. Boxed beef prices were mixed with choice down $1.31 and select up $1.75. Feeder cattle futures were pressured from live cattle futures as well as higher corn futures. Overnight corn was higher, which may limit any price rally for the time being. The Commitment of Traders report showed funds as net buyers of 7,309 live cattle contracts, bringing their net-long position to 46,807 contracts.

Hogs took a beating with June closing limit down. There was some spillover pressure from cattle, but the bearishness was due to other factors. One was the spread of COVID in China and further lockdowns. China has been a hit-and-miss buyer of pork this year, but this creates some concern over export demand potential. The other is the uncertainty of domestic demand as cutouts continue to fluctuate. Traders have not been confident that cutouts have established support due to price fluctuations. Cutouts fell $5.49 Monday, overriding the gain on the National Direct Afternoon hog report of $0.64. Futures are expected to see some follow-through this morning. The Commitment of Traders report showed funds as net buyers of 1,382 contracts, increasing their net-long positions to 56,190 contracts.

	BULL SIDE		BEAR SIDE
1)	Cattle futures left chart gaps above the market Monday that need to be filled.	1)	The selling of cattle futures eliminated the gains of the past two weeks despite the recent gains in the cash market. Traders anticipate more cattle coming to the market next month.
2)	April live cattle futures now hold a discount to cash with the contract ending trading on Friday. June futures will take over Monday, holding a steeper discount.	2)	Delayed planting and higher corn futures will keep pressure on the cattle complex.
3)	The projection is for hog supplies to tighten. The selloff Monday may be more of a reaction to the pressure on cattle and the news of the spread of COVID in China rather than on fundamentals.	3)	Pork cutouts have yet to establish solid support and cash needs to trend higher. Traders may remain cautious until that is established.
4)	Hog futures are nearing technical support which should increase buying interest for the long term.	4)	Technical traders see the large head and shoulders formation in the June contract that might be confirmed if price falls below the $112 level. This could trigger further technical selling.

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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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