Tuesday Morning Livestock Market Update - Cattle Futures Adjust to Higher Cash

GENERAL COMMENTS:

Traders were slow to support the cattle market Monday as the initial pressure came from the bearish nature of the Cattle on Feed report. However, the fact that cash cattle moved sharply higher last week overrode that bearishness. Futures closed much as how it could have been expected with higher placements impacting late-year contracts while strong cash supports near-term contracts. It is doubtful the strength of cash will be repeated this week, but prices should be supported. Boxed beef was higher with choice up $0.25 and select up $1.96. The Commitments of Traders report showed funds increasing their net-long live cattle position by 2,882 contracts, carrying a net-long position of 55,963. Funds increased their long feeder cattle position by eight contracts with their net-long futures positions at 2,986.

Hogs tumbled to new contract lows in contracts through February. Later contracts closed at new lows. There is no bottom in this market even though there seems to be good demand as packers maintain a strong slaughter pace. The National Direct Afternoon Hog report showed cash up $0.60 with a weighted average of $86.64. Cutouts did not fare as well with a decline of $1.20. USDA will release the Quarterly Hogs & Pigs report Thursday and it is anyone's guess as to the impact that will have on the market. There could be some short-covering ahead of the report. The Commitments of Traders report showed funds reducing their long positions by 8,922 futures contracts putting them net-short 317 contracts. It has been quite some time since funds have been net-short futures in the hog market.

	BULL SIDE		BEAR SIDE
1)	Traders are focused on cash and have discounted the large placement number reported on the Cattle on Feed report. The expectation is for cash to be no worse than steady this week.	1)	The large placement number in May may have bearish ramifications late in the year and could pressure prices.
2)	The large increase of cash cattle last week indicates demand remains strong and packers must purchase cattle aggressively to maintain the slaughter pace.	2)	Cattle futures have a chart gap below the current level which may be filled sooner rather than later.
3)	Hog futures remain extremely oversold with short-covering potential at any time. Any bullish news could be the catalyst to trigger it.	3)	Hog futures making new contract lows again does not bode well for the market technically and fundamentally.
4)	Low prices cure low prices and, certainly, hog prices are low. High beef prices should shift more consumer demand to pork.	4)	The upcoming Hogs and Pigs report may keep traders cautious about buying into the market even though the market seems to be overdone to the downside.