Thursday Morning Livestock Market Update - Futures May Correct

GENERAL COMMENTS:

Cattle futures have certainly been on a roll with August and later contracts again posting new highs. Cash traded Wednesday similar to Tuesday with cattle in the South $122 to $123, $2.00 higher than last week, while the North traded $193 to $197, $4.00 higher than last week. It is surprising packers are not using faltering boxed beef as leverage to bid lower. However, they need cattle and are paying up to get them. Boxed beef fell dramatically Wednesday with choice cuts down $5.26 and select cuts down $8.32. When cash trades higher early in the week, it is a good sign as cash trade did not need to hold out to see whether buyers or sellers blink first. The market will be watching any progress that might be made on the resumption of exports of beef from Argentina as they continue to work on policies for reopening those exports. Weekly exports may have some influence on futures trading Thursday, but not likely any influence on cash for the rest of the week.

What can be said about hogs other than "Katie bar the door?" The heaviest liquidation of the past four days took place Wednesday with contracts locked limit down through February. This means trading limits are expanded Thursday. However, the National Direct Afternoon report showed hog prices up $5.73, indicating packers are aggressively looking throughout the countryside for hogs. Unfortunately, cutouts were down $1.99, raising some concern prices may have reached a top. It seems much of the pressure on futures is from technical selling as stops were triggered and traders exited positions. Based on market fundamentals, futures may be overdone to the downside. The price gap in July futures was closed Wednesday while the August now has a price gap from Monday on the upside at $116.25. Weekly export sales need to be good or the market may fear a backup of supply. Saturday slaughter is estimated at 62,000 head.

	BULL SIDE		BEAR SIDE
1)	New highs in cattle futures keep the trend intact, supported by higher cash.	1)	Boxed beef prices are plummeting, possibly indicating demand is slowing. Packers may eventually use that as leverage to pay less for cattle.
2)	Demand continues to remain strong even though boxed beef is plummeting. Lower beef prices could actually spur greater demand.	2)	Cattle futures may have run too high, too fast and may falter if weekly export sales show slowing international demand.
3)	Hog futures may be overdone to the downside considering the strong performance of cash over the past two days.	3)	Hog futures closing limit down generally results in further follow-through selling.
4)	The August contract has a price gap about $4.50 above the close Wednesday that will need to be filled.	4)	China needs to be listed as a strong buyer on the weekly export sales report and sales need to be good or further price correction is possible.