Monday Morning Livestock Market Update - Lower Cattle Futures Expected

GENERAL COMMENTS:

Traders did not have much more to provide market direction after cash was set for the week at mostly steady prices. Some dressed cattle in the North traded $1.00 lower, leaving the market lethargic. The attention was turned to the Cattle on Feed report due out after the close Friday with traders somewhat content with their positions, leaving futures mixed for live cattle. Feeders drifted lower with a rise of grain prices. Cattle on feed numbers came in about as expected at 101% compared to the average estimate of 101.1%. However, placements were the real kicker with the actual number at 109% compared to the estimate of 106.5%. This indicates more cattle will be available to move through the system, delaying the anticipated tighter supplies as the year progresses. Supplies are expected to tighten but not it will take longer than anticipated. Packers will take advantage of these numbers and limit what they will be willing to pay for cattle. Marketings were a bit more of a bright spot at 105% compared to the average estimate of 104.2%. Futures are expected to open lower.

Hogs were on fire again Friday with new highs in all contracts except front-month April. Packers needed hogs to round out the week and paid an average of $2.27 more to get them. Added to that was cutouts posting a gain of $1.89. There just seems to be no stopping this market as supplies of hogs are truly tightening, causing packers to fight for supply. It is not too often that we see hog futures this close to cattle futures and the potential is for them to move closer. Traders may be a bit less exuberant this week as the Quarterly Hogs & Pigs report will be released on Wednesday. However, if cash remains strong early this week, it may not make much difference what the report says and strength will continue.

	BULL SIDE		BEAR SIDE
1)	Some of the Cattle of Feed report may already be factored into the market, which could result in limited downside weakness.	1)	Placements of cattle in feedlots were much higher than expected, which will put pressure on futures, possibly leaving a chart gap on the open.
2)	Strong demand should absorb higher cattle numbers more quickly, limiting potential heavy supplies and price weakness in the months ahead.	2)	Feedlots will have a tough time holding for higher cash as packers likely will not budge from lower bids this week.
3)	Futures continue to make new contract highs, which keep traders aggressively buying the strength. Futures weakness is short-lived.	3)	Hog futures have a chart gap below the market, which may be filled depending on the Hogs & Pigs report numbers on Wednesday.
4)	Packers are expected to be aggressive again this week as they scour the countryside for market-ready hogs.	4)	Higher pork prices may reach consumer resistance at some point. The market cannot go up forever.