Monday Morning Livestock Market Update - Cattle Expected to Show Weakness

GENERAL COMMENTS:

When USDA released the Planted Acreage report that showed corn acres at 94.1 million, corn futures plummeted. In reaction, the cattle complex found strong buying interest with feeder cattle exploding higher. New contract highs were made in December, February, and April live cattle while feeder cattle soared to new highs through the February contract. It was "Katy, bar the door!" buying in feeder cattle. Even though cash cattle traded generally $1.00 to $2.00 lower during the week with some in the North trading at $1.00 higher, the focus was on feed. The weakness of boxed beef also was forgotten for the time being with choice down $0.33 and select down $3.55 on Friday. Strong gains in cattle last week will increase the resolve of feedlots to hold for higher cash this week. No business is expected ahead of the holiday tomorrow, but feedlots may decide to hold cattle longer if higher cash is not paid. The Commitment of Traders report showed funds reducing their net long futures positions by 4,249 contracts to a net long of 107,152 futures positions as of June 27^th. Feeder cattle long positions were trimmed by 1,061 contracts to a net long of 14,634 contracts.

Spread trading dominated much of last week in hog futures. October and later contracts showed continued weakness. Hog futures did not share the same enthusiasm as cattle as cash has not been supportive during the week. The National Direct Afternoon Hog report showed cash down $3.04 on Friday. Cutouts were also weaker posting a decline of $0.45. Packers are not expected to be aggressive today ahead of the holiday tomorrow but may need to step up later in the week. It is July and some aspects of Prop 12 are in effect, but it is unclear just how this will impact the market. The Commitment of Traders report showed funds increasing their net long positions by 2,624 futures contracts with their net long positions totaling 10,443 contracts.

	BULL SIDE		BEAR SIDE
1)	New contract highs in cattle should keep traders confident of further upside potential. Technically, the market is strong.	1)	Corn futures are higher overnight which may put some pressure on cattle futures after the strong gains last week.
2)	Feedlots are expected to hold for higher cash due to the strength of futures and continued tight supply of cattle.	2)	Feeder cattle futures are overbought with two chart gaps remaining below the market. Gaps generally are filled at some point.
3)	Packers have been unaggressive in their quest for hogs last week but are expected to step up again after the holiday.	3)	Part of Prop 12 has gone into effect with fresh pork destined for California needing to be Prop 12 compliant. This may keep some pressure on later contracts due to the uncertainty of demand.
4)	Recent demand has been strong for pork and that should continue through the rest of the summer supporting nearby contacts.	4)	Packers may not be very aggressive today as the holiday tomorrow disrupts the slaughter schedule for the week.