Friday Morning Livestock Market Update - Cattle Futures May Remain Under Pressure

GENERAL COMMENTS:

Traders showed concern earlier in the week about the strength of cash and their fears became reality Thursday as cash cattle traded $2.00 lower in both regions. The cash market has moved in a sideways range the past few weeks by gaining $2.00 one week and then losing $2.00 the next week. Boxed beef prices have also been choppy this week. Prices for boxed beef on Thursday were lower with choice down $1.98 and select down $2.70. Beef prices may have reached a threshold for the foreseeable future, making it difficult for futures to resume the upward trend. Weekly export sales were supportive with sales of 17,700 metric tons (mt), but that did not get much attention by the trade. Feeder cattle were hit hard with contracts closing at the lowest level since June 6.

Hog futures continued to regain the losses of earlier in the week as traders focus on market fundamentals rather than technicals. Cash hogs had been strong the first half of the week with some weakness on Thursday with the National Daily Direct Afternoon Hog report down $0.53. The cutout value increased by $0.98 with further gains in cutouts expected Friday. Weekly export sales were good at 31,500 mt, up 5% from the previous week. Packers continue to hold a strong slaughter, indicating overall demand is strong and hogs are needed to fill that demand. Futures are expected to trade higher during the day with the August likely closing the chart gap remaining from Monday.

	BULL SIDE		BEAR SIDE
1)	Cattle supplies remain tight and the downside of prices may be limited. The summer slump in beef demand may be temporary with strong demand resuming.	1)	Feeder cattle futures took a hit with contracts falling below support and to the lowest level in nearly 2 months. There could be further follow-through selling.
2)	Cattle futures seem to have been overdone to the downside with futures likely trading mixed or higher today ahead of the weekend. Futures hold a discount to cash.	2)	Cash cattle may have reached a threshold with prices holding or weakening near term. Futures may have a difficult time moving higher.
3)	The August hog contract nearly closed the chart gap remaining from Monday. This should be accomplished Friday, effectively negating the losses.	3)	Hog futures have nearly regained the week's losses but may have difficulty resuming the uptrend. Demand is good but it may not be good enough.
4)	Higher cutouts and the continued strong slaughter pace provide solid support under the market. The packers may again be aggressive buyers early next week.	4)	Cash hogs are expected to be lower Friday which may limit the ability of the market to see much upside ahead of the weekend.