Thursday Morning Livestock Market Summary - Hog Traders Focus on Export Sales Numbers

GENERAL COMMENTS: 

Light-to-moderate trade developed Wednesday in several areas with prices generally $4 to $5 per cwt lower than week-ago levels. Although some additional trade may need to develop in the next couple of days, especially in the North, the tone of the market appears to be set following early-week trade. This could add increased underlying softness to the entire complex as cash market support is trying to make early-month adjustments following additional futures and wholesale beef value pressure. Futures are expected mixed with a combination of follow-through pressure and short-covering expected early in the session. Late-day gains in grain trade Wednesday added to the uncertainty in cattle futures with firm pressure in live and feeder cattle trade at the end of the session. Very little has changed fundamentally for cattle or beef, with the recent market tumble driven by technical pressure. Given the still firm demand outlook, the beef complex remains oversold, with a strong market rebound possible in the near future.

Limit gains that flooded back into the complex on the first trading session of May reminded traders and all market watchers how volatile the hog market has become and how quickly a market turnaround can develop. The weekly Export Sales report on Thursday will be the main focus in the morning with traders closely watching for additional China trade. This in itself will likely set the tone of the market for not only the trading session, but the rest of the week. Traders continue to look for increased export demand in order to supplement domestic needs given overall pork production continuing to expand through the year. Cash trade is called steady to $1 lower Thursday morning with most bids steady to weak. Expected slaughter Thursday is at 475,000 head. Saturday runs are expected at 36,000 head.

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BULL SIDE
1) Cattle futures remain oversold and near a tipping point following the aggressive technically driven selling the past couple of weeks. This could allow for unchecked market gains once buyers step back into the complex.
2) Wholesale beef values have held up well compared to the market erosion in live cattle futures prices. This indicates strong underlying demand expectations and the ability to still move beef product to end users at stable price levels.
3) Limit higher gains Wednesday once again put the emphasis on hog futures being able to quickly move in either direction. This latest shift may continue to expand market prices through the end of the week.
4) Traders look for moderate-to-active sales of pork to China through the end of last week, and reported on Thursday's export sales report. A strong sales report would likely spark additional widespread buying.

BEAR SIDE

1) May feeder cattle futures not only are holding contract lows, but prices have continued to steadily push lower as widespread liquidation continues to quickly erode any sense of market support left in the market.

2) Active pressure in open interest of live cattle contracts continues to develop. Open interest has fallen over 33,000 contracts in the last week as traders are quickly exiting the complex.

3) Cash hog market weakness is expected Thursday as packers continue to focus on improving margins through the first week of May by limiting overall spending and starting to curb production levels.

4) Concerns surrounding the ability to sell pork to China continue to be the main issue for the hog market. A bearish weekly Export Sales report Thursday morning would likely spark another round of lean hog futures selling.