Monday Morning Livestock Market Update - Futures Expected to Open Higher

GENERAL COMMENTS:

The expectation of a friendly Cattle on Feed report was well founded as the report met that expectation overall. The on-feed number was 98% with trade expectations of 98.3%, which should provide some support. Placements of 92% compared to last year and expectations of 93.2% also should provide support as they indicate supplies should tighten as the year progresses. However, marketings were 95% of a year ago compared to expectations of 96.5%. This is viewed as a bit bearish as lower marketings could mean near-term supplies are plentiful. Bear in mind the actual is compared to estimates from which we determine the report is either bullish or bearish. The bottom line is all numbers are below a year ago which can be considered friendly. The larger issue remains of the disparity between cash and beef prices. Cash cattle were $1 to $2 higher last week while boxed beef prices soared. On Friday, choice cuts jumped $3.43 while select cuts gained $2.12. Futures should extend gains Monday, but bear in mind, the price increases Friday may have already factored in the report.

October hog futures came very close to closing the chart gap Friday but could not accomplish the task nor could they hold the highs. The expectation for cutouts trending higher has not fully come to fruition. Packers continue to find sufficient hogs, which leaves them less aggressive in the cash market. The National Direct Afternoon report on Friday showed prices down $2.40. Sufficient hogs are being found to keep plants operating and demand filled. Cutouts declined $2.14 on Friday, which does not paint a strong picture for more strength in futures to begin the week.

	BULL SIDE		BEAR SIDE
1)	Lower placements on the Cattle of Feed report show a continuation of the decline of placements over the past few months. Cattle numbers may tighten as the year progresses.	1)	Marketings in July were a little less than expected, which may offset lower placements in the coming months if the trend continues.
2)	Feedlots will set higher offers this week due to a friendly Cattle on Feed report and sharply increasing boxed beef prices.	2)	Labor Day demand may come to an end soon, which may result in boxed beef prices sliding.
3)	Hog futures rallied despite lower cash and cutouts. The large discount of October futures to cash may provide support.	3)	Hog futures could not hold their highs Friday, which may indicate upside is limited unless cash and cutouts turn higher.
4)	October has a price gap in the chart over $1.00 above the market that needs to be closed.	4)	Cumulative export sales of pork so far this year have totaled 1.354 million metric tons, compared to 1.436 mmt during the same period last year.