DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $222.78 +$1.10*

Hogs: Higher Futures: Mixed Lean Equiv: $107.17 -$0.09**

*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:

We can say what we want about the tightness of cattle supplies, higher calf prices, feeder prices, and some buyers having a difficult time finding sufficient cattle for slaughter. However, the market is now being driven more by perception than tight cattle supplies. Traders do not like the uncertainty surrounding HPAI that has been found in dairy cattle and whether that could impact beef cattle and potentially impact demand. This flu is not considered a concern for food safety, but consumer perception is what will impact the market. Cash cattle traded lower last week with Southern cattle $2.00 lower at $182 and Northern cattle $2.00 to $4.00 lower, ranging from $293 to $295. Boxed beef closed higher with choice up $2.20, pushing it back above $300 again, while select gained $0.39. June cattle futures closed at the lowest level since Jan. 10 after falling below support Friday. USDA has proposed some changes to livestock publications. This may reduce some of the accuracy and transparency of certain reports. They plan on reducing the number of published states on the January Cattle Inventory report from 50 states to 31 states. The Commitments of Traders report showed funds reducing their net-long positions by 18,488 contracts to a net long of 42,136 contracts. Funds sold 3,049 futures contracts, bringing their net-long positions to 6,019 futures contracts.

Hogs fell under substantial pressure, likely pressured by concerns over inflation and the impact it could have on demand. Markets always fall faster than they increase and this is another classic example of that. The market has corrected from being overbought, but traders may be somewhat cautious to buy back into the market very quickly. The National Direct Afternoon Hog report showed cash down $0.45. with a weighted average price of $86.60. Cutouts showed weakness with the average price down $0.09. The USDA is proposing a change to the December Quarterly Hogs & Pigs report by reporting numbers from just 16 of the 50 states. This may create greater volatility after the report and less transparency. The Commitments of Traders report showed funds increasing their long futures position by 17,932 contracts and a net long position of 93,104 contracts.

	BULL SIDE		BEAR SIDE
1)	Cattle are oversold technically and may bounce at some point if traders feel comfortable about the market.	1)	Cattle futures falling below support does not bode well for the market as it could trigger further fund liquidation.
2)	Boxed beef seems to be stabilizing, which may mean the impact on demand for the avian flu in dairy cattle and inflation may not be as great a concern as anticipated.	2)	Packers continue to reduce slaughter to improve margins. That may back up some cattle in the market, allowing for them to be less aggressive with cash.
3)	Pork demand remains strong, which should provide support to the market after the technical correction has run its course.	3)	It is uncertain how deep the market correction could be for hog futures. If demand slows somewhat, further downside could unfold.
4)	Pork export sales last week were very good, which is an indicator that international demand is strong and may improve.	4)	Weekly hog weights increased by 0.9 pounds from the previous week, putting the average weight at 288.0 pounds; this is 0.6 pounds above a year ago.

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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