DTN Early Word Livestock Comments

Cattle: Higher Futures: Mixed Live Equiv: $204.57 +$4.03*

Hogs: Higher Futures: Mixed Lean Equiv: $98.97 -$1.14*

*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 futures just could not find either aggressive buying or selling Tuesday leaving the market neutral. Even though boxed beef prices were higher, traders seem focused on waiting for cash again. Even though there is a strong chance for higher cash, traders remained cautious due to the holiday week. Boxed beef showed an incredible gain in choice cuts of $8.09 while select increased $0.17. Feedlots will hold out again as they anticipate packers will need to be aggressive as they do not have many contracted ahead for this week. Feeder cattle were under pressure due to the somewhat bearish placement number of the Cattle on Feed report and due to higher corn prices. Futures may have a difficult time maintaining upward momentum this week. The Commitment of Traders report showed funds increasing their long positions by 213 contracts, bringing their net-long positions to 67,127 futures contracts.

Hogs traded the strong cutouts of Friday, the Hogs & Pigs report and strong spread trading interest. The strength in nearby February was somewhat of a surprise as futures are nearly $13.00 above the lean hog index. Friday's report showed lower hog supplies in 2023, but that has been circulating in the market for some time. With hogs kept for breeding a little higher than the trade expected, upward price potential may be limited unless demand increases both domestically and internationally. Cutouts took a step back Tuesday, declining $1.14 and may have a negative impact on trading Wednesday. The Commitment of Traders report showed funds reducing their long positions 2,920 contracts, bringing their net-long positions to 34,762 futures contracts.

	BULL SIDE		BEAR SIDE
1)	Packers likely need more cattle and may need to pay more for them as feedlots will again hold out.	1)	Packers want to see their margins improve and will not want to pay any more for cattle this week, even if it means they will be moving into the first week of 2023 light on supplies.
2)	Strong gains in choice boxed beef are improving packers' margins which may have them more aggressive in the cash market to capitalize on strong demand.	2)	Higher placements on the report Friday may limit upside potential for deferred contracts.
3)	April and later hog futures moved to new contract highs again Tuesday. Traders remain optimistic, supported by Friday's report.	3)	February hog futures have a large premium over cash that may not be sustainable.
4)	Cash is expected higher Wednesday as packers need to procure more hogs due to the lower numbers purchased last week. Slaughter pace remains strong.	4)	Hog futures could not hold the highs Tuesday, which may trigger liquidation and positioning before the end of the 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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