Friday Morning Livestock Market Update - Who Will Blink First?

GENERAL COMMENTS:

Both packers and feedlots dug in for the week Thursday, waiting to see who would blink first. Packers are loath to raise bids due to substantially lower margins than last year and the three-year average. The lower trend of boxed beef prices and fewer cattle out in the country have created a tough scenario for packers. Feedlots are fully aware of the situation and intend to capitalize on it. Packers revealed live bids at $176 and dressed bids at $290 to $292. There were a few traded at $292 in Iowa but not enough to set a trend. So far, feedlots have passed with offers of $182 to $182 in the South with no solid offers in the North. Boxed beef closed lower with choice down $0.48 and select down $0.05. Weekly export sales were up slightly from the previous week at 21,400 metric tons (mt).

Hogs just could not maintain the upward momentum, ending Thursday lower. Better export sales had no significant impact on the market. Weekly exports sales totaled 25,200 mt, up 33% from the previous week. Cash activity pointed to lower prices with the National Direct Afternoon Hog report down $2.78. Packers purchased much of what they needed for the week, leaving them less aggressive. Cutouts were higher with a gain of $1.98, which may lend some support to early trading Friday. Saturday slaughter is estimated at 82,000 head.

	BULL SIDE		BEAR SIDE
1)	The resolve of feedlots might pay off again this week as packers will need to purchase animals to meet strong demand even though their margins are not very good.	1)	With tighter margins, packers may have a greater resolve to hold current bids rather than be more aggressive with purchases this week.
2)	Lower corn prices overnight might provide some support to feeder cattle and provide some confidence to feedlots to hold over cattle if they do not receive the prices they want.	2)	Packers may slow chain speed further, requiring fewer cattle to be purchased over the next few weeks. Feedlots may need to move some cattle as corn price remains high, even though it has weakened this week.
3)	Pork cutout prices continue to improve with values Thursday reaching $114.73. Summer demand is good.	3)	The large discount in October and later hog contracts indicates the continued uncertainty of overall demand as the possible full implementation of Prop 12 and Question 13 draw closer.
4)	August hog futures hold a discount to both cash and the index with about two weeks left to trade.	4)	Packers are not expected to be strong buyers of hogs Friday as much of the business has been accomplished for the week.