Friday Morning Livestock Market Update - Lower Processing Speeds Are Concerning

GENERAL COMMENTS:

Live cattle futures were facing a tough day Thursday with weekly export sales showing a reduction of 3,900 metric tons (mt). Futures did move lower as was expected, but short covering eventually was triggered with some traders trying to bottom pick the market. Even though export sales were dismal, boxed beef prices have been improving all week, not by leaps and bounds, but improving. Choice cuts were up $1.61 and select up $1.03. Cash cattle trading is basically done for the week with prices generally steady. Some Northern dressed sales were $1.00 lower. Beside higher feed prices, the other aspect plaguing the market is reduced slaughter due to the uncertainty of the workforce from day to day. Less workers means less slaughter being done. This impacts the bargaining power of feedlots as cattle begin to back up. Demand is strong but cattle need to be processed.

Cash hogs are on a roll with four days of higher prices. The National Direct Afternoon report Thursday showed a gain of $0.78. Cash prices have increased each day since the beginning of the year dispelling the fear of disruption due to Prop 12. That still may become an issue over time, but current strength is a sight to behold. Weekly exports sales were good at 19,400 mt. China was back in purchasing pork and were listed at the third largest buyer. Cuts jumped posting a gain of $3.64. Even though hog slaughter is being affected by the same issues cattle are, packers have remained aggressive as hog supplies have tightened. Saturday slaughter is estimated at 264,000 head.

	BULL SIDE		BEAR SIDE
1)	Both live and feeder cattle futures have a chart gap remaining above the market that will be filled at some point.	1)	Net reductions of beef export sales does not bode well for overall product movement. This will back up supply into the domestic market.
2)	Demand for beef continues to remain strong, which may limit the weakness of cash as packers will need to purchase cattle.	2)	Reduced slaughter pace due to the lack of employees and mechanical breakdowns leaves packers with the reduced need to purchase cattle and allows them to forward contract more supply.
3)	China purchasing pork as seen on the weekly export sales report, was positive. Tighter hog supplies and good exports should keep the market supported.	3)	Packers may not be as aggressive Friday paying lower money for hogs. This could result in some selling of futures into the end of the week.
4)	Strong cash all week indicates packers are having a difficult time finding the hogs they need unless they increase bids. This pattern may continue for a period of time.	4)	The potential for lower processing speeds could impact the market at some point. The uncertainty of how many employees will come to work or who will come to work is plaguing the market.