Thursday Morning Livestock Market Update - Hog Futures May Show Further Strength

GENERAL COMMENTS:

Buyers and sellers of cattle could not come together Wednesday, leaving cash trading activity to the second half of the week. The anticipation is for steady cash trade to take place which may support the market. However, any weakness could trigger aggressive selling pressure. Boxed beef prices were mixed with choice up $0.29 and select down $1.22. The packers continue to hold the line on slaughter to improve margins, which have been running near last year's levels, but far below the three-year average. It is somewhat unusual to see feeder cattle futures move in the opposite direction from live cattle, but traders supported feeder cattle futures through the end of the year. Feeder cattle interest at auctions remains mixed depending on the category.

Hog futures showed strength, taking back some of the losses of Monday. The action early this week seems to have been a technical correction and not a change in trend. Cash has supported the market while cutouts have limited the upside price potential. The National Daily Direct Afternoon Hog report showed cash up $1.08 while cutouts declined $0.72. The packers are not expected to show as much interest Thursday as they may have purchased much of what they need for the week. It will be up to demand to determine whether further strength is forthcoming. The increased slaughter pace indicates demand is strong.

	BULL SIDE		BEAR SIDE
1)	Cattle futures hold a discount to cash and even steady trade in the country may result in futures moving back near last week's highs.	1)	Even with the expectation of steady cash, cattle futures have been struggling as traders remain cautious.
2)	The overall trend is up and should remain that way as cattle supplies remain tight and consumer demand improves over time.	2)	Cattle prices may have reached a threshold, limiting the upside price potential. Demand is good but not good enough to push prices higher.
3)	Hog weights declined last week with the average weight at 282.7 pounds, down 0.9 pound from the previous week. This trend may continue for the next few weeks.	3)	Hog weights are still 5.9 pounds above a year ago. This may limit the volume of hogs purchased to fill weekly demand.
4)	Hog futures have rebounded after the liquidation that took place on Monday. Fundamentals remain supportive with futures potentially regaining the losses due to continued good demand.	4)	Cash hogs are expected to be lower the rest of the week as packers may have a sufficient supply purchased. This may limit the strength of futures.