Tuesday Morning Livestock Market Update - Cattle Futures Expected Higher

GENERAL COMMENTS:

Cattle futures were higher for the week but coasted into the weekend ahead of the Cattle on Feed report. The report was considered neutral to a bit friendly in the long term. To some extent, this may have been already factored in as futures were higher for the week, but most of the gains were likely due to higher cash cattle trade. However, the numbers will remain tight according to the report. Southern cattle traded $1.00 higher while Northern dressed cattle traded as much as $5.00 higher with the average price in Nebraska reaching an all-time high. It is interesting cattle futures are not at new contract highs even though cash is at a record high. Boxed beef prices were higher with choice up $0.61 and select up $1.64. Fund traders increased their long positions by 7,843 futures contracts on the Commitments of Traders report, bringing their net-long futures positions in live cattle to 49,463 contracts. The funds reduced their net-long futures positions in feeder cattle to 4,204 contacts, a decrease of 207 contracts.

Hog futures have much to overcome as the National Direct Afternoon hog report on Friday was down $1.63 with a weighted average of $86.64. The higher slaughter level is overwhelming demand, resulting in continued pressure on the market. The market is oversold technically, but that will not cause a price rally. There needs to be consistent fundamental support. Interestingly, fund traders remain long in the market with the Commitments of Traders report showing them holding a net-long futures position of 44,171 contracts. However, this was a decline of 12,931 contracts from the previous week. Cutouts were higher Friday posting a gain of $0.45. The packers may be more aggressive Tuesday as they need to purchase hogs for the week to makeup for the 3-day holiday.

	BULL SIDE		BEAR SIDE
1)	The Cattle on Feed report was neutral to friendly with tighter numbers continuing to support the market.	1)	Cattle futures may have the Cattle on Feed report already factored in which may result in some profit-taking Tuesday.
2)	Higher cash cattle last week will provide confidence to feedlots to hold for more this week.	2)	Boxed beef prices may trend lower now that Memorial Day demand is finished and consumers settle down to regular demand and high beef prices.
3)	Hog futures are substantially oversold and nearing technical support. This could trigger short-covering.	3)	Hog futures have not found consistent support from cash and cutouts. This keeps the concern of reduced demand alive and well.
4)	Retail outlets will need to restock shelves, which will support cutout prices.	4)	Hog futures are oversold but that does not mean the market will rally. It can remain that way for an extended period.