Monday Morning Livestock Market Update - Were the Cattle Reports Friendly Enough?

GENERAL COMMENTS:

Cattle received their support Friday in part from the Cold Storage report but mostly from substantially lower grain prices. Feeder cattle reacted directly from the lower grain prices. Surprisingly, traders have not shied away from the market due to lower cash sales for the week and they seemed confident that the Cattle on Feed report was not going to burn them if they held onto their long positions. Their assessment of the Cattle on Feed report was correct in that it was a friendly report. I would not say it was bullish as placements were down about 1% from a year ago while marketings were up about 1%. The caution here is that futures increased on Thursday and Friday despite lower cash. This could potentially result in futures not needing to move higher as the trade had already factored in a friendly report. Cattle futures are notorious for trading in the opposite direction the following day relative to what the report indicates. How much support will come from the bi-annual Cattle Inventory report is difficult to determine. It generally is not a market mover as it looks at cattle inventory from the previous year. Even though total inventory was down 2% from a year ago with calves down 2% as well, it may little impact.

Hog futures continued to push higher Friday. Even though the National Direct Afternoon report showed cash down $0.72, the anticipation is that packers may follow the pattern of the past few weeks and begin the week aggressively looking for hogs and paying higher prices to get them. They may want to do business early in the week to make sure they have enough on the books by the middle of the week. Strong consumer demand keeps packers active in order to make sure they can keep chain speed at the desired level. There continues to be evidence that hog supplies will become tighter as the year progresses, but now that China may be curtailing imports, more supply may be available to the domestic market. Cutouts were up only $0.06 Friday leaving little support from that area.

	BULL SIDE		BEAR SIDE
1)	Cattle futures have been able to rally even though cash traded lower last week. Traders may feel downside is limited.	1)	Cash is expected to be lower this week as packers are in the position of being less aggressive due to already committed supplies.
2)	Smaller supply of market-ready cattle may limit the downside of cash. Feedlots are current and lower grain prices may keep them willing to hold for nothing less than steady cash.	2)	Buy the rumor sell the fact, may be the response of traders after the Cattle on Feed report resulted in a price correction.
3)	Hog futures for October and later contracts set higher highs each day last week as traders feel confident in stronger prices yet to come.	3)	Hogs have not been able to find much support recently from the cash market. Packers have been able to find sufficient number to fill demand.
4)	The December contract is only about $1.00 shy of closing the chart gap on the upside. This may be accomplished sooner rather than later.	4)	China may be backing away from purchasing U.S. pork as their internal supplies may be increasing. This had been expected and may now be coming to fruition.