Tuesday Morning Livestock Market Update - Hog Traders Search for Price Direction

 General Comments:

Cash cattle trade continues to remain quiet early Tuesday morning with asking prices and bids likely to be unavailable through most of the morning. At this point, it is uncertain if asking prices will become more actively distributed through the last half of the day, or if many will wait until Wednesday before putting prices on cattle available. The firm support in live cattle and feeder cattle futures last week is expected to help spill over to the cash cattle trade, with many expecting steady-to-firm price levels given the underlying support in nearby futures moves. But the seasonal pressure in the complex and softness in beef values following the Labor Day holiday could cause any cash cattle support to be limited for another couple of weeks. It is uncertain just how many cattle packers will need to purchase this week, as the increased volume through the end of August and early September has seemingly started to already fill plant orders beyond the normal one- to 14-day delivery schedules, this could be one of the main factors that could limit cash cattle trade during the week. Mixed price movement is likely in both live cattle and feeder cattle futures early Tuesday although the recent support in the complex is helping to rekindle bullish market intentions as traders break away from recent lows in early September. The ability to hold current support levels in live cattle and feeder cattle futures during the middle of September would break away from the typical post-Labor Day pattern, which could lead to the fall market rally developing sooner than expected. But in order to do this, beef values will need to show more stability over the next week.

Despite the strong price pullback in nearby lean hog futures Monday, the underlying tone of the market remains bullish given the potential to expand pork export sales levels in the near future. The question still needing to be answered is how much of the previous German exports will the U.S. be able to secure. At some point the discussion moves beyond price and availability of product and how well positioned the U.S. is in building a strong relationship with these countries in order secure additional pork business. The emotional buying support last week has been slowed significantly with traders taking a more strategic and realistic focus on how the changes in worldwide export shifts will impact the hog market. This is why deferred futures were little changed in Monday's price correction, while October and December futures posted the most aggressive pressure. The fact is, that nearby lean hog futures rallied $13 per cwt over the last two weeks, and this unchecked market momentum is unrealistic and unattainable. Additional price shifts are likely to develop in nearby lean hog futures over the coming days as traders try to get a better grasp of the longer-term market direction of the hog complex. Cash hog prices are expected $1 lower to $2 higher with most bids expected steady to $1 higher. Slaughter Tuesday is expected at 485,000 head. Saturday runs are expected at 170,000 head.

	BULL SIDE		BEAR SIDE
1)	Strong follow-through gains in live cattle futures have continued to spark interest in the complex. October live cattle futures have moved back near $107 per cwt, creating the real possibilities that seasonal lows have been set, breaking away from the typical post-Labor Day sell-off earlier than expected.	1)	Boxed beef values have continued to erode lower. The inability to spark increased demand for pork cutout values following Labor Day is not a surprise, but without beef values stabilizing, the recent move higher in futures trade will be difficult to maintain.
2)	Triple-digit gains Monday in feeder cattle futures continue to push prices off early September lows. If current support levels hold over the next couple of weeks, the fall lows may have already been established, creating renewed buyer support over the next several weeks. This is expected to limit typical cash market pressure developing in feeder cattle markets over the next couple of months.	2)	Market seasonality still remains a bearish factor for feeder cattle trade, which will continue to post increased placement levels as the fall calf run starts to develop. The expectation that even larger cattle placements in feed yards through the next couple of months could put additional pressure on cash and futures feeder cattle prices has many traders cautious.
3)	Sharp gains continue to develop in cash hog values as packers aggressively increase offering pries. The national average hog price surged $4.94 per cwt Monday moving near $58 per cwt. The narrowing of the gap between cash hog prices and futures trade is creating underlying fundamental support in the complex.	3)	Pork cutout values eroded Monday as traders remain uncertain the true implications of export business following bans on German pork. This could leave prices shifting in a moderate range over the coming weeks on speculation about how much actual product will be exported on a short-term basis.
4)	Despite the price correction on Monday, lean hog futures still remain focused on long-term bullish market shifts with price levels gaining more than $10 per cwt over the past two weeks. This underlying support in the complex is expected to expand over the near future as global supply tightness will tighten over the coming weeks.	4)	Wide price swings in October and December futures contracts points to the emotional volatility in the market. Although long-term support is expected, the uncertainty of how demand will shift in the coming days and weeks could bring about even more wide price swings and price shifts.