Monday Morning Livestock Market Update - Futures Eye Holiday Next Week

GENERAL COMMENTS:

Cash cattle ended the week steady to lower, but better than some had anticipated. Northern cattle traded $1.00 lower Friday, which was a bit better than earlier trade during the week. Southern cattle were about steady with the previous week. The fact that cash is not improving despite boxed beef showing strength indicates packers are playing their cards right and slower slaughter is improving margins. A seasonal decline of boxed beef after Labor Day may provide some headwind to the market. Packers may exercise patience again this week as they are purchasing ahead for the holiday-shortened week next week. Boxed beef was higher Friday with choice up $0.27 and select up $0.76. The Commitment of Traders report showed funds reduced their long futures positions by 7,377 contracts, bringing their net-long positions to 90,394 contracts. Feeder cattle showed funds reducing their long positions by 1,283 contracts, bringing their net-long positions to 11,888 contracts.

Hog futures struggled through Friday, closing mixed but well off their highs. October was under pressure as cash continued to fall. The National Direct Afternoon report showed cash down $3.03 to close out a negative week. Traders had hopes that a repeat of last week would again unfold with short-covering into the weekend. However, the incredible weakness of cutouts turned up the pressure on futures with contracts closing around $2.00 off their highs. Cutouts lost an incredible $11.50 with a huge $58.48 decline in bellies. I cannot remember ever seeing pressure of this magnitude or at least it has been a long time. Fundamental support remains elusive. The Commitment of Traders report showed hogs reducing their long positions by 1,646 contracts, bringing their net-long positions to 22,502 futures contracts.

	BULL SIDE		BEAR SIDE
1)	Boxed beef continues to improve, which is also improving packer margins, allowing them to be more willing to pay for cattle and reducing the recent weakness of cash.	1)	A slower slaughter pace is improving packer margins, which will keep them working the market lower to maintain that direction. The holiday next week may leave them less aggressive.
2)	Feeder cattle futures are holding in a sideways trading pattern and are poised to move higher as numbers remain tight.	2)	Boxed beef prices seasonally decline after Labor Day, which will be a factor for both demand and the willingness of packers to purchase.
3)	Cutouts and cash have been weakening, yet hog futures have been holding remarkable well.	3)	The large decline of cutouts and lower cash Friday are expected to pressure the market Monday.
4)	Lower pork prices should improve demand, which should cause packers to be more aggressive in their purchasing. After the weakness of last week, packers could be more aggressive with their purchases earlier this week.	4)	Packers may not need to be aggressive this week as next week will be a holiday-shortened week.