Monday Morning Livestock Market Update - No Cash Cattle Trade Expected, But Pork Packers May Be Buying Hogs

GENERAL COMMENTS:

Live cattle futures moved higher Friday to mirror underlying cash. Southern live cattle traded steady to $1.00 higher last week with Northern dressed trading at steady money. This renewed the optimism of traders for the time being. Boxed beef prices continued to provide support with choice up $1.39 and select up $0.68. Demand is good and the packers are trying to improve margins by slightly reducing the slaughter pace. However, higher cattle weights continue to provide sufficient beef to the market. The weekly export sales report provided little excitement as sales were 3% below the previous week. Cash cattle trade may not occur until Friday as the Cattle of Feed report will be released and traders will want another week of boxed beef prices under their belts. The Commitments of Traders report showed funds adding 10,337 live cattle futures contracts, bringing their net-long position to 88,301 contracts. They added 1,208 futures contracts in feeder cattle increasing their net-long futures position to 7,657 contracts.

Hog futures had little reason to close higher, but gains were seen on all contracts. The National Direct Afternoon Hog report showed a decline of $4.10. Packers did not need the hogs but were willing to purchase them at significantly lower prices. They may be more active Monday as they may want to take advantage of the lower prices and attempt to purchase hogs earlier in the week rather than later. Pork cutouts showed strength with a gain of $0.18. The weekly export sales were not as good as hoped but respectable at 38,100 metric tons (mt), down 25% from the previous week. The trend remains up and traders seem to be willing to defend that trend. The fund traders added 6,409 long futures positions, bringing their net-long futures positions to 84,679 contracts. This is about 12,000 contracts shy of the record-long position held in September 2013.

	BULL SIDE		BEAR SIDE
1)	There is little reason for cattle futures to fall back with price retracements being viewed as buying opportunities.	1)	The high beef prices are impacting export sales. This may back up the beef supply into the domestic market.
2)	Continued strong boxed beef prices indicate good demand and will provide support under the market.	2)	Cattle futures may chop around much of this week due to limited or no cash trade until late in the week and the positioning ahead of the Cattle of Feed report.
3)	December hogs closed higher for the week and at the highest level since April 24, keeping the uptrend intact.	3)	The large decline in cash hog prices Friday may be difficult to overcome this week as packers continue to purchase sufficient hogs without difficulty.
4)	The funds continue to add to their long positions despite the inability of cash to trend higher. Hog supply is expected to tighten over time.	4)	Fund traders hold a substantial long position in hog futures. If something shakes their confidence in holding those positions it could trigger liquidation.