Tuesday Morning Livestock Market Update - Bearishness May Be Difficult to Overcome

GENERAL COMMENTS:

The news of the JBS fire Monday morning resulted in cattle futures gapping lower at the open. However, as the day progressed, futures were able to close the gap with the anticipation and news that the plant will be up and running Tuesday. However, futures could not muster enough support to undo the damage. Futures have fallen back to the lower level they have been since June 1 and the lowest close since May 4. The decline has been massive and likely unprecedented in such a short period of time. It will be difficult for feedlots to expect a higher cash price this week as packers will use the weakness of futures to their advantage. Continued weakness of boxed beef is also a negative factor even though packer margins remain very strong. Beef export sales so far this year are a record high at 833,700 metric tons (mt) compared to sales last year at 690,900 mt. China has purchased 129,000 mt compared to 24,000 mt last year. The Commitment of Traders report showed funds as net sellers of 16,053 contracts with current net long positions at 67,593 contracts.

It would appear that hog futures went along for the ride Monday, but that was not the case. A slight rise at the open was quickly erased as further liquidation erupted, sending futures to triple-digit losses. October closed at the lowest level since March 4 and still unable to find support. The National Direct Afternoon Hog report showed price down $1.38 as packers are able to procure hogs without difficulty. The tightness that has been anticipated earlier this year, is nowhere to be found at the present time. Cutouts plummeted $4.53 adding to the bearishness. The Commitment of Traders report showed funds as net buyers of 1,010 contracts, bringing their net-long positions to 84,399 contracts. Bear in mind that this report was for positions as of Sept. 7.

	BULL SIDE		BEAR SIDE
1)	The JBS plant will be up and running again Tuesday. It may not be at capacity but running, nevertheless. Saturday slaughter will try to make up for some of the loss.	1)	Live cattle fell to the lowest level since June 1 and still no sign of liquidation running its course.
2)	Cattle futures are oversold with technical traders chomping at the bit for any indication of a bottom.	2)	The combination of futures and boxed beef prices falling leaves little reason to expect higher cash.
3)	Hog slaughter is lower than a year ago, which may be indicating a trend for tightening supplies if demand remains strong.	3)	The overall weakness of hogs leaves little reason for traders to buy futures until selling pressure subsides.
4)	There remains a large discount of futures to cash with a month remaining to settle October to the index.	4)	Still no indication of a bottom with futures closing at the lowest level since March 4. .