Monday Morning Livestock Market Update - Cattle Expected Lower

GENERAL COMMENTS:

The Cattle on Feed report was bearish all the way around. On feed numbers were 1% higher than a year ago and above expectation for slightly lower numbers. Placements were significantly bearish as 6% more cattle were placed in feedlots in December than a year ago. This was over 4% more than the average trade estimate. Marketings were even with last year but about 1% below the trade estimate. This has been the subject of much discussion over the weekend with some disbelief as to the numbers but also some ideas as to why placements were large. Either way you look at it, there are more cattle on feed and placed in feedlots than expected. These cattle will need to be worked through the system. This may be a tall order in the near term as slaughter pace remains lower than desired. This has not likely already been factored in the market leaving it vulnerable to further liquidation. Beef exports sales were an improvement at 12,800 mt but may not be enough to offset the implications of the report. Boxed beef took a breather Friday with choice down $0.57 while select gained $0.15. Futures are expected to struggle to begin the week.

Hog futures are on a tear with traders very aggressive. Stronger cash indicates packers are willing to pay more for available hogs. Even though slaughter pace has been less than desired, hogs have not backed up in the market. Cutouts were up $1.05 on Friday indicating strong demand. Weekly export sales were very good at 38,700 mt. April through August futures contracts made new highs again with June and July nearing $105. Hog slaughter is showing signs of increasing, which should also provide support to the market as packers will need to increase their purchases. Traders may begin the week with some caution waiting for indication of packer aggressiveness.

	BULL SIDE		BEAR SIDE
1)	Cattle supplies are expected to tighten over time. The slight backup of cattle and higher weights will need to be worked through.	1)	The Cattle of Feed report was not supportive to the market over the near term. There will be a lot of cattle to work through over the next months.
2)	Improving slaughter pace could keep packers more aggressive bidding no less than steady cash.	2)	Packers may bid lower cash this week, especially since they see plentiful cattle supplies.
3)	The trend is up in hog futures keeping traders actively purchasing.	3)	Hog futures cannot go up forever. With futures overbought, it is ripe for a price retracement.
4)	Large export sales even without China buying indicates strong demand for pork internationally. This is coming at a time when pork supply is tightening.	4)	April hog futures have a chart gap remaining $9.00 below the market. These gaps generally are filled before the end of the contract.