Monday Morning Livestock Market Update - Cattle Expected to Bounce

General Comments:

Later cattle contracts took a hit on Friday possibly in anticipation of the Cattle on Feed report. Actually, Thursday and Friday were not good days for cattle futures. Traders seemed to want to liquidate and take profits in case the report was not friendly to the market. The Cattle on Feed report showed that traders were probably too cautious about holding long positions as the overall report was neutral. On feed numbers were higher than expected at 102%, but placements were at 98% of what they were a year ago. Marketings were also at 98%, which may not make much different due to the adverse weather that was endured. This could be made up for in a short period due to strong demand. My one concern is that each of these categories was slightly higher than the average trade estimate. That is where caution comes in. On most agricultural reports, it is not the actual numbers that are released by the USDA, but where those numbers fall in relation to the average trade estimates. However, in this case, futures have already fallen quite a bit, which may trigger buying interest now that the numbers are known. Futures are expected to rebound somewhat.

Hog futures have not followed cattle in that they remain in a solid uptrend even though futures came under pressure Thursday. Bullish fundamentals continue to support the market, keeping traders confident any price correction will be short-lived. There is one caution that must be exercised, and that is that cutouts are becoming a little suspect and may be running out of steam. Packers may begin to hold back on their aggressive buying now that they have a supply of hogs procured ahead. The Chinese Agricultural Ministry reported that their breeding sow inventories had been growing during the first two months of the year and are up 35% from a year earlier. If this is true, then their pork imports may decrease as the year progresses. However, private firms in China have reported that sow inventory had declined 5% during the first two months due to the resurgence of African swine fever. I would place my bet on what the private firms indicate.

	BULL SIDE		BEAR SIDE
1)	Cattle futures likely overcorrected in anticipation of a bearish Cattle on Feed report. Traders may buy back into futures positions.	1)	The large decline of cattle broke multiple levels of technical price support. It may be difficult to regain much of that loss without some very bullish news.
2)	Boxed beef prices seem to be supportive enough that packers may be more aggressive this week and may bid higher to obtain the cattle to keep plants full.	2)	Cattle futures may have factored in the Cattle of Feed report and may develop a sideways trend for a period of time.
3)	Pork has been in strong demand and packers have had to bid higher to get ownership of the required amount to maintain processing speed. This should continue.	3)	Weakening pork cutouts may begin to have a negative influence on packers and reduce their willingness to bid higher.
4)	Hog futures have had a price correction and are now poised to continue to run higher. Traders are bullish and are holding long positions.	4)	There is uncertainty just how much impact the resurgence of African swine fever may have had in China since the beginning of the year. Slowing exports could be possible. There is uncertainty just how much impact the resurgence of African swine fever may have had in China since the beginning of the year. Slowing exports could be possible.