Monday Morning Livestock Market Update - Futures Price Direction May Be Slow to Develop

GENERAL COMMENTS:

Traders have little interest in putting extra premium in futures as stronger cash this week may be difficult to develop. Packers paid higher prices last week with Northern cattle up $3.00 and Southern cattle $1.00 to $2.00 higher. The strength was not supported by boxed beef prices, which were mostly mixed for the week and mixed on Friday with choice down $0.39 and select up $0.47. It seems demand is not picking up as expected so far this month, which may leave the market on the defensive to some extent. International demand may be impacted by continued high beef prices as weekly export sales showed only 9,000 metric tons (mt) sold, down 32% from the previous week. Mixed prices are being recorded at feeder cattle auctions as some of the earlier exuberance seems to have waned. The Commitment of Traders report showed funds reducing their long positions by 8,266 contracts to a net-long position of 86,170 futures contracts. Feeder cattle positions were reduced 1,917 contracts to 7,055 net long futures positions.

Hog futures again were the recipients of spread-trading with December and February contracts showing the most pressure while later contracts closed steady to higher. Futures did not find support from either cash or cutouts. Packers showed little interest in trading Friday with the National Direct Afternoon Hog report down $1.54 while pork cutouts declined $1.64. This does not paint a good picture for stronger futures Monday. Weekly exports sales did not provide any incentive to buy into the market either with sales of 21,100 mt, down 51% from the previous week. Funds added to their long positions, according to the Commitment of Traders report. Funds increased their long positions by 2,726 contracts to a net-long position of 16,477 contracts for the week ended Oct. 10.

	BULL SIDE		BEAR SIDE
1)	Feedlots were able to hold out for higher cash, which may give them the confidence to hold for more this week. Cattle numbers remain tight.	1)	Higher cash was already factored into the market, leaving little reason for futures to move higher. Traders show little interest in adding extra premium.
2)	December live cattle futures did not quite close the chart gap Friday with the higher opening. Price will need to move higher to close the gap.	2)	Slow export sales may indicate international buyers slowing purchases of beef due to high prices. Beef prices may have reached a threshold.
3)	December hogs hold a discount to cash, which may provide support near the current level if cash finds some stability.	3)	Pork cutouts continue to struggle, unable to find solid consumer demand. Concern over the full impact of Prop 12 keeps the market on the defensive.
4)	If the market follows the pattern of the past two weeks, packers should be more aggressive Monday, looking to purchase hogs early.	4)	Hog futures are not oversold technically, which may leave the way open for futures to revisit the lows.