DTN Early Word Livestock Comments

Cattle: Higher Futures: Higher Live Equiv: $210.23 +$1.57*

Hogs: Lower Futures: Mixed Lean Equiv: $90.21 -$1.65**

*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 realized steady cash last week was not cause for continued weakness of futures. Optimism returned for higher cash due to continued strong demand. Boxed beef prices were again higher with choice up $3.15 and select up $0.26. The strong slaughter pace is keeping cattle current, which will keep packers looking throughout the countryside for market-ready cattle. Even though there are continued fears of inflation having an impact on overall demand, consumers continue to prefer beef at present. Cash cattle trade is expected to follow the pattern of the past few weeks with no activity likely until Thursday as feedlots hold for higher cash market-ready cattle not backed up in the country. The demand for feeder cattle has held auction prices higher with the weakness of corn providing support.

Hogs rallied despite underlying fundamentals. An oversold market triggered short-covering throughout the complex. Cash was a bit higher at midday but ended $0.59 lower on the afternoon hog report. Cutouts were higher at midday but fell $1.65 by the end of the day. Pork is overwhelming the market as slaughter remains strong with product prices declining to move pork. Packers seem to want to continue higher chains speeds as long as the hogs are available, building cold storage supplies for later in the year when hog supplies might tighten. The February contract was unable to close the chart gap at $79.15. This may be closed sooner rather than later.

	BULL SIDE		BEAR SIDE
1)	Cattle are not backed up in the country, providing feedlots with the confidence to hold for higher cash. They are not pressured to move cattle.	1)	Any weakness of current demand may cause futures to trend lower in anticipation of lower cash and lower boxed beef.
2)	Strong boxed beef prices will keep slaughter pace strong and packers active in the cash market.	2)	Even though cattle supplies are reportedly tightening, the higher slaughter pace is being met with sufficient supply. Maybe cattle are not as tight as anticipated.
3)	Trader optimism may have increased due to the washout last week subsiding and the potential for stronger demand at current low pork prices.	3)	February hog futures still have a chart gap below the market that needs to be filled. This may happen before futures can trend higher.
4)	The more hogs that are killed now, the sooner supply might tighten as the market becomes current.	4)	Cutouts continue to trend lower, unable to find support. Strong slaughter pace keeps pork supply plentiful at lower prices.

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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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