Thursday Morning Livestock Market Update - Lower Cash May Dampen Enthusiasm

GENERAL COMMENTS:

Traders seem to think cattle futures have been overdone to the downside and gained some confidence to buy back into the market even though the Cattle on Feed report will be released Friday. However, after the boxed beef prices and early cash trade Wednesday, this idea may be short-lived. Limited cash trade took place in Nebraska and Iowa on Wednesday at $4 lower than last week. Even though activity was light, it does indicate cash trading will be lower this week. Boxed beef is not providing any support for packers to be more aggressive. Prices were mixed with choice up $0.66 and select down $0.03. The Cattle on Feed report may keep trading subdued the rest of the week as traders position themselves. The average estimate for on-feed as of Nov. 1 is 102.1% compared to a year ago. Placements in October are estimated at 107.0% with the range from 101.0%-108.0%. Analysts estimate marketings in October at 98.1%.

The unwinding of spreads took place in hogs Wednesday, putting pressure on nearby months. Continued cash and cutout weakness leaves futures with limited upside potential. The National Direct Afternoon Hog report was down $0.73 with the weighted average at $63.08. This nearly steady erosion of cash is not conducive to stronger prices. Cutout values declined $0.78, pressured by the $8.00 decline in bellies. Hog weights continue to increase with an average of 287.3 pounds last week. The estimated slaughter for Saturday is 238,000 head.

	BULL SIDE		BEAR SIDE
1)	The cattle market had been oversold and futures may correct further even though the Cattle on Feed report will be released Friday.	1)	Traders are concerned over the level of placements that will be reported for the month of October. That may keep price strength limited ahead of the report.
2)	Chart gaps remain significantly above current prices and a friendly Cattle on Feed report could renew the possibility of closing those gaps.	2)	Early cash cattle trading $4 lower than last week does not bode well for any sustained price gains in the near term.
3)	Hog futures remain in a sideways pattern, which may be building technical price support.	3)	Hog weights continue to increase with the average last week of 287.3 pounds, up 0.6 pounds from the previous week and 3.5 pounds from a year ago.
4)	Fund traders had significantly increased their long futures positions, which may indicate they are buying for the long term.	4)	Cash and cutout weakness may keep upside price potential limited and encourage potential further price erosion.