Monday Morning Livestock Market Update - Traders Wary Over Further Weakness

GENERAL COMMENTS:

There were no surprises in cash cattle Friday to get the market excited. Cash was established earlier in the week, carrying through at generally $2.00 higher in the North and steady in the South. Continued weakness of boxed beef does provide concern over the willingness of packers to pay higher or even steady money this week. Boxed beef showed choice down $0.30 and select down $1.12. However, slaughter pace has increased nicely with the kill last week higher than the previous week and higher than a year ago. Higher feed prices always are a concern for those who raise livestock. There has been a concern over fertilizer prices and the impact that may have on grain production. Now another issue is present with the announcement from Bayer of a force majeure event that may significantly hinder Bayer's ability to supply its customers with glyphosate or glyphosate-containing products this crop year. A mechanical failure at a manufacturing plant providing a key raw material may cause production to drop for about three months. This could have a significant impact on yields and possible grain prices.

Hogs felt more pressure Friday with April through July contracts posting triple-digit losses. February was slightly higher as it remains close with the index. Monday is the final day for the February contract with April becoming front-month Tuesday and holding quite a bit of premium. Cash was lower on the National Direct Afternoon report with a loss of $0.28. However, that was overshadowed by large increase in cutouts of $8.48. Hams again were the leader with a gain of $22.37 with gains in all cuts except ribs. Futures may attempt to rebound after two days of losses, but traders may be cautious at the start as fund selling many times lasts for three days unless technical support holds.

	BULL SIDE		BEAR SIDE
1)	Cattle slaughter is getting back on track, which means packers need to purchase more cattle to fill schedules.	1)	Continued weakness of boxed beef may leave packers less willing to purchase cattle, even at steady money. They already have some cattle contracted over the next few weeks.
2)	Feedlots will attempt to hold for higher cash this week as they know packers will need to remain aggressive. A bounce in futures could provide the confidence needed to hold out.	2)	Increasing feed prices continues to impact profitability, which may push feedlots to be more aggressive with marketing.
3)	The sharp increase of pork cutouts Friday indicates strong demand continues and needs to be met. Packers may be aggressive earlier in the week.	3)	Hog futures may see another day of liquidation if traders are not yet ready to buy the break of the past two days.
4)	Traders may step back into futures after two days of selling as they may want to buy the break and continue to position themselves for the long haul and tighter hog supplies.	4)	April takes over as the front-month contract Tuesday, carrying a large premium to cash. This may put further pressure on price to reduce some of that premium.