Thursday Morning Livestock Market Update - Futures Strength May Be Difficult to Maintain

GENERAL COMMENTS:

Cattle continued to increase for the fourth consecutive trading day with contracts setting new highs as trader optimism runs high. The bullish cattle inventory report, weather impacting movement, packers bidding up for cattle and chain speed returning to where it should be is supporting futures. Just how far this will carry futures higher is unclear, but a strong move of this magnitude may be met with a price correction. Cash activity has been limited so far this week but what has taken place indicates feedlots should receive higher prices. Light trade in Nebraska took place as much as $4.00 higher. However, overall trade is not expected to be that strong. Increasing cattle futures have given feedlots the confidence needed to hold out longer this week in the hopes that packers will increase bids. There is concern over continued weakness of boxed beef with choice down $2.29 and select down $0.65. Inflation seems to be having an impact on beef demand.

Hogs are very bullish with increasing cash and strong cutout prices. Traders continue to put significant premium in the market with April showing an unusually high premium to cash for this time of year. June hog futures nearly reached $110 as traders continue to buy into the market. Cash on the National Direct Afternoon report increased $6.46. Cutouts were strong with a gain of $3.47. Even though the movement of hogs is being impacted due to the winter storm, the estimate for Saturday slaughter is 186,000 head. This may change and may need to be updated as we move toward the weekend.

	BULL SIDE		BEAR SIDE
1)	New contract highs continue to be posted as traders are bullish the market.	1)	April live cattle left a chart gap at the open on Monday that needs to be filled. The gap is about $3.00 lower.
2)	The prospect of higher cash this week is keeping feedlots holding out for higher prices. Initial higher trade and strong futures prices is providing confidence that higher cash may be realized.	2)	Cash may not trade as high as anticipated, which could remove some premium out of the market. Trade should take place Thursday, which will provide direction.
3)	Hog futures have rebounded strongly after their slight dip at the end of January. New highs from strong buying interest put substantial premium in the market.	3)	Hog futures have substantial premium in relation to underlying cash. Some of this large premium may need to be removed from the market once the current exuberance runs its course.
4)	Packers are bidding aggressively for hogs as higher cutout prices drive them to fulfill demand.	4)	The impact of hog movement in those areas affected by the weather will be temporary with a normal slaughter pace resuming next week. Hogs are readily available.