GENERAL COMMENTS:
Nearby live cattle futures poked higher but could not maintain the gains through the end of the day. Cash did not trade as feedlots seem determined to hold for higher prices. The World Agricultural Supply and Demand report showed estimates for a higher average price this year at $143.15 while the estimate for next year remained unchanged at $154.00 but over $10.00 higher than this year. Cattle numbers are tightening due to drought, high feed prices and strong slaughter. The ultimate driver of the market will be demand. So far, demand has been holding well and will need to remain that way for these estimates to come to fruition. Cash is expected to trade today with little from yesterday's market providing packers with leverage. Boxed beef was mixed with choice down $0.09 and select up $1.41. Weekly export sales may provide some early direction with the focus then switching to cash prices.
October hogs are winding down with tomorrow being the final day to trade the contract. It does not appear the gap will be closed below the market as price holds close to the index. The large discount to cash for December is generating some trader interest as the gap had narrowed with strong gains in futures. The National Direct Afternoon Hog report showed cash up $2.41 with the lean hog index at $92.95. Cash is expected to be weaker today if the pattern holds of two days of strong cash. The World Agricultural Supply and Demand report was not friendly for hogs as USDA reduced exports from their previous estimates and reduced prices as well. The average price this year was reduced to $71.08, down $0.22 while the average price next year was reduced to $67.00, down $3.00 from the September estimate. Weekly export sales will hopefully provide further support.
| BULL SIDE | BEAR SIDE | ||
| 1) | Packers will need to pay more for cattle this week to maintain slaughter speed and satisfy the resolve of feedlots. | 1) | Cattle futures already have higher cash factored in which could leave futures somewhat steady the rest of the week. |
| 2) | Strong slaughter pace keeps cattle moving through the system to satisfy the demand for beef. This keeps cattle supplies current. |
2) | Export sales have been lower than desired, and the report today may show more of the same due to the strong U.S. Dollar. |
| 3) | Hog weights increased 1.1 pounds last week but remain 3.7 pounds below a year ago. |
3) | February hogs still have a chart gap below the market that may be filled before the market can trend higher. |
| 4) | October hogs go off the board tomorrow leaving December as the lead month carrying a large discount to cash. |
4) | Hog slaughter has increased but there remains sufficient supply leaving packers aggressive only two days per week to obtain the needed hogs. Packers are trying to improve margins. |
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