Tuesday Morning Livestock Market Update - Follow-Through Strength May Be Limited

GENERAL COMMENTS:

Cattle ran higher on the expectation of stronger cash this week. Packers would like to see margins improve but need to satisfy demand. Slaughter continues to run higher than a year ago. Boxed beef was higher Monday with choice up $0.45 and select up $1.08. October live cattle moved to a new contract high as traders anticipate further cash strength over the next two weeks before the contract expires. Traders will begin to look ahead to the Cattle on Feed report to be released on Friday, but the focus will be on cash for now. The Commitment of Traders report showed funds selling 7,874 futures contacts, bringing their net-long position to 35,062 contracts -- the lowest net long we have seen in quite some time.

Hogs had another big day with futures reaching nearly $3.00 higher. December nearly closed the chart gap, which may be closed Tuesday as there may be follow-through buying on the potential for stronger cash. Slaughter pace continues to run strong, which indicates not only stronger domestic demand but also strong international demand as we have seen on the recent export sales reports. December futures have quickly narrowed the gap between it and cash. The market did not find support from the cash market as the National Direct Afternoon Hog report showed a decline of $1.56. However, cutouts were higher with a gain of $1.64. The Commitment of Traders report showed funds as net sellers of 1,803 contracts, bringing their net-long positions to 21,024.

	BULL SIDE		BEAR SIDE
1)	The prospect of stronger cash this week provided support to the market.	1)	Cattle futures have already factored in higher cash for the week, which may leave limited further upside.
2)	A tighter supply of market-ready cattle is causing packers to be more aggressive as they need feedlots to pull cattle forward to keep a balance of supply with slaughter pace.	2)	The long liquidation selling trend for cattle is a bearish development with traders concerned over slower demand potentially developing due to high inflation.
3)	More optimism has surfaced in hogs due to strong export sales and increased slaughter pace.	3)	Hog slaughter has increased but hog supply is readily available, leaving packers less aggressive with cash much of the week.
4)	Higher cash is expected for hogs Tuesday as it likely follows the same pattern as we have seen for quite some time.	4)	Once chart gaps are filled on the upside, hog futures may retrace as technical traders may sell the market.