Friday Morning Livestock Market Update - Hogs May See Further Weakness

GENERAL COMMENTS:

Live cattle futures spent time on both sides of unchanged Thursday but were able to close slightly higher. Steady to higher cash provided the needed support to keep futures from trending lower. Southern cash traded steady with last week, which was a victory, while Northern dressed cattle were able to trade as much as $4.00 higher putting the icing on the cake. Packers needed cattle and the end of the week was looming and feedlots were holding out. Slaughter is running stronger than last week and a year ago with demand remaining brisk. Packers had some cattle already contracted earlier but they did not have much wiggle room to hold out another week. Boxed beef was mixed with choice down $1.03 and select up $0.41. Weekly export sales were not as good as hoped totaling 19,700 mt, down 28% from last week. Feeder cattle futures posted generally triple-digit losses due to the strength of corn.

Hog futures moved slightly higher early but then fell hard the rest of the day. June took the brunt of it closing $3.50 lower eliminating the gains of the week and then some. The action seemed to be technically driven. When futures could not extend the gains, traders liquidated resulting in a double-top. There may be further follow through Friday, but then futures could rebound to some extent as nothing changed fundamentally. The National Direct Afternoon Hog report showed cash down $0.91 while pork cutouts gained $0.18. Weekly export sales were strong totaling 38,300 mt, an increase of 51% from a week ago. China was not listed in the top buyers which should not make any difference due to phenomenal demand from Mexico and Japan. We need to look at total exports and not just who is buying. Saturday slaughter is projected at 59,000 head.

	BULL SIDE		BEAR SIDE
1)	Steady to higher cash indicates packers do not have much supply on hand and needed to get business done. This should provide more confidence to feedlots looking ahead to next week.	1)	Even though cash cattle traded steady to higher Thursday, futures did not respond very much. Traders are cautious over the level of demand in the near term.
2)	Feeder cattle are in demand garnering higher prices on auctions. Corn futures are settling into a sideways to slightly lower range, which has taken away some of the fear of continued escalating feed prices.	2)	Disappointing weekly export sales leaves a cloud over the market with more beef available for domestic consumption.
3)	Even with the decline of hog futures Thursday, the overall trend is still up as supplies are tighter and packers aggressive.	3)	Hog futures formed a double-top, establishing a level of strong price resistance and the potential of follow-through weakness Friday.
4)	Weekly exports sales were strong reducing the fear of pork supply backing up in the domestic market.	4)	Follow-through selling is expected Friday due to futures closing near the lows.