Cattle Futures Should Maintain Uptrend

Cattle: Steady Futures: Higher Live Equiv: $234.77 +$1.39*

Hogs: Higher Futures: Mixed Lean Equiv: $95.34 +$0.18**

*Based on the formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. The 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.

Live cattle were on fire last week with futures pushing to new contract highs and cash prices jumping significantly. Southern live cattle sold for $2.00 to $5.00 higher with Northern dressed cattle ranging from $6.00 to $8.00 higher. The packers were short-bought and feedlots held out. It is difficult to believe this could be repeated this week, but anything is possible. Eventually, the market will find a level where demand will slow and prices will retrace. Boxed beef continued to increase with choice up $1.76 and select up $2.49. Feeder cattle remain in strong demand with buyers aggressive at auctions with prices generally $10.00 higher in most categories recently. The Commitments of Traders report will be released today, delayed due to the holiday.

Hogs struggled last week. It is uncertain whether some of the losses were due to end-of-the-year positioning and lighter trading activity or if the fundamentals were the driving force. It likely was a combination of both. The weakness has damaged the charts significantly and may be difficult to recover from. The weakness of cash and cutouts last week points to reduced demand and a further concern for price strength. It would seem logical that pork demand should improve due to the high beef prices as consumers continue to face higher food prices. The National Daily Direct Afternoon Hog report on Friday showed cash down $0.49. Pork cutouts gained $0.22. Cutouts need to see continued price increases to generate aggressive buying by traders and regain the losses realized over the past two weeks.

	BULL SIDE		BEAR SIDE
1)	There is no sign of beef demand slowing or feeder cattle prices dropping anytime soon.	1)	High prices cure high prices and cattle are moving closer to that level where demand will be impacted. That has already been seen with international demand.
2)	Feedlots have been in control and holding for higher prices. This will continue as packers need cattle and the feedlots are not pressed to move cattle.	2)	The Commitments of Traders report will be released today and is likely to show a record-long managed money position in live cattle. That usually does not last very long before liquidation is triggered.
3)	Hog futures may have been impacted more by the holiday season trading activity and, now that it is over, traders might view the current price as a buying opportunity.	3)	Cash hogs and cutouts have not been able to find solid support. The weakness keeps pressure on the market.
4)	Hog slaughter pace remains strong as packers need to satisfy demand. This keeps the hog supply from backing up.	4)	Hog supply remains sufficient for demand with packers not needing to be aggressive purchasers, even though the slaughter pace remains strong.

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 [email protected]