Friday Morning Livestock Market Update - Hog Futures May Show Further Weakness

GENERAL COMMENTS:

Packers paid up to purchase cattle with a wide range of prices. Southern cattle traded around $2.00 higher while Northern cattle traded as much as $5.00 higher. With boxed beef prices trending higher due to strong demand, packers cannot afford to sit back. Lower cattle prices are just not in the cards at the present time. Strong slaughter pace needs to be maintained, even though market-ready cattle supplies are light. Higher boxed beef prices are making it a bit easier for packers to pay more and yet still maintain a profitable margin. Boxed beef showed choice up $1.63 with select up $3.31. Weekly export sales were neutral at 14,100 metric tons (mt) which did not provide support to the market. Traders did not react to the higher cash as it was already factored into the market with trading activity taking place on both sides of unchanged.

Hog futures opened lower because of disappointing export sales. Futures never regained the losses, being unable to move into positive territory. Liquidation intensified as the day progressed. The weakness may carry through Friday as the market corrects from being overbought. Although China was a buyer on the weekly export sales report, sales of 20,300 mt coupled with lower cash put pressure on the market. The National Direct Afternoon Hog report showed cash down $6.99. Cutouts were up $0.72, but that did not stem the selling tide. Follow-through selling is expected Friday.

	BULL SIDE		BEAR SIDE
1)	Strong cash sales are an indicator of tightening supply of market-ready cattle. Supply will not change overnight, providing a strong potential for higher cash next week.	1)	The inability of cattle futures to move higher after a strong gain of cash Thursday could trigger some profit-taking as the market is overbought.
2)	Demand is good and boxed beef prices are trending higher. This should keep packers aggressive.	2)	Higher beef prices will eventually impact demand, reducing upside price potential.
3)	Strong hog slaughter pace should keep packers engaged in the market and buying aggressively when they need to.	3)	Weekly pork exports being half of what they were the past few weeks may impact the market for a few days as liquidation takes place.
4)	There may be limited downside potential as hog futures correct from being overbought.	4)	Cutouts are struggling to trend higher. This may limit upside potential further than what we have already see.