Friday Morning Livestock Market Update - Prices May Be Near a Top

General Comments:

April and later live cattle futures held support Thursday, closing slightly higher, but the same cannot be said for front-month February. February closed lower for the second day, ending just slightly below the 20-day moving average. The February contract needs to come in line with cash. The cash market has not been tested to any great degree, but the general consensus is that cash will trade $1.00 higher. Feedlots are banking on it, having the confidence that waiting until the last minute will result in packers writing a larger check. This strategy has been working the past few weeks, so why not try it again. The market might be indicating a top is developing, but it is too early to tell. Weakness of boxed beef may be some cause for concern. However, strong demand should keep product movement brisk.

One would think that hog traders would show greater concern over a severely overbought futures market, but it seems to be spurring them on. It almost seems as if the Reddit crowd stepped into April hogs, but there is no indication of that. The market is both fundamentally and technically driven higher. Having said that, it is Friday and we are looking at a three-day weekend, which could trigger some profit-taking. Pork cutouts closed $2.01 higher Thursday at $88.87 with April pork cutout futures closing at $89.80. Friday is the final day to trade the February contract, bringing April to front-month and carrying a stiff premium to the index. Estimated Saturday slaughter is around 216,000 head.

	BULL SIDE		BEAR SIDE
1)	Live cattle futures held support, which could provide confidence for traders to continue to purchase contracts aggressively.	1)	Cattle futures may be faltering with lower prices for boxed beef. If futures are unable to find its legs and rebound, selling pressure may surface.
2)	Even though boxed beef prices slipped Thursday and exports are not quite as good as hoped, overall demand remains strong. Cash should move higher.	2)	If cash would end up no better than steady Friday, traders may take profits on futures, pushing prices below technical support.
3)	February, April and May hog futures made new highs as traders anticipate futures gains in cash. Packers have good margins and need to keep demand satisfied.	3)	Hogs futures are getting closer to a top each day as it will not move higher forever. The severely overbought market is ripe for long liquidation and the upcoming three-day weekend could be the catalyst.
4)	Weights have been declining and may decline further in the near-term due to extremely cold weather. This should spur packers to be aggressive buyers and keep a steady chain speed.	4)	June and later contracts could not post new highs Thursday, which will increase the caution of traders. Any price weakness may trigger aggressive selling.