Friday Morning Livestock Market Update - Hog Weakness Seems Excessive

GENERAL COMMENTS:

Live cattle were able to find some support due to futures now holding a discount to cash. Futures are not expected to rebound much Friday as traders look ahead to the Cattle on Feed report this afternoon. Estimates are for cattle on feed March 1 at 95.6%, placements during February at 93.9%, and marketings at 95.8%. A bullish report has been anticipated, yet the market has endured selling pressure recently. Futures will move relative to how the numbers are compared to what the estimates are. The trade knows cattle numbers are tighter and will remain that way for some time, but demand will be the driver of price. Boxed beef has been struggling with choice down $0.32 and select down $0.87 Thursday. Export sales were an improvement over the previous week with net sales of 17,700 metric tons (mt), up from last week, but not as good as hoped. Cash has traded $1.00 lower in both the North and South this week with little change expected Friday as packers finish out purchasing their needs. Feeder cattle at auctions were selling at lower prices this week in response to lower cattle futures. Futures bounced even though corn was higher.

It is difficult to determine what triggered the selling over the past two days in hog futures. Cash was not that bearish with the National Direct Afternoon report down $0.37. The weakness of cutouts put more pressure on the market with a loss of $1.89. Hams fell $6.00 with bellies down $4.43. Liquidation erupted Wednesday and gathered steam Thursday as futures fell and stops were triggered, propelling the market even lower. The selling has been attributed to uncertainty over the economy and financial markets, but that seems to be an excuse for technical traders to push the market lower. The uncertainty has not impacted other agricultural commodities quite as much. Export sales were positive Thursday at 35,600 mt, up 62% from the previous week. Saturday slaughter is estimated at 87,000 head.

	BULL SIDE		BEAR SIDE
1)	Cattle futures hold a discount to cash, which may keep prices from moving lower.	1)	Steady cash cattle last week and $1.00 lower this week may temper the market. Packers are paying less to preserve margins.
2)	The Cattle on Feed report is expected to be bullish, which should continue to provide long-term support to the market.	2)	Boxed beef continues to show overall weakness. Demand may be slowing as high beef prices may have reached consumer resistance.
3)	Hog futures are oversold with selling possibly having run its course. Fundamentals have not been overly bearish over the past two days to warrant the magnitude of the decline.	3)	There may be some follow-through selling due to June and July closing limit down and not allowing further liquidation Thursday.
4)	Good export sales indicate international demand remains strong. This is expected to continue as pork prices are attractive and other countries want pork.	4)	Bullish traders may have run to the sidelines, making it difficult for futures to regain the losses anytime soon.