Monday Morning Livestock Market Update - Fund Traders Hold Record-Long Hog Futures Positions

GENERAL COMMENTS:

Last week was not a positive week for cattle and the initial outlook for this week does not look supportive. Cash cattle did well, considering the weakness of boxed beef and the need for feedlots to move some cattle. Southern cattle traded steady with Northern dressed cattle ranging as much as $3.00 lower. Futures did correct from being overbought, but weakness also came from the steady decline of boxed beef prices. Boxed beef closed on Friday with choice down $3.26 and select down $0.34. It may be difficult for futures to shake last week's weakness unless there is positive evidence of demand. Restaurant traffic is lighter than usual as consumers struggle with high food prices and have changed their eating habits to compensate. This may mean reducing the consumption of higher-priced beef. The Commitments of Traders showed fund traders increasing their long positions in live cattle futures by 7,691 contracts, bringing their net-long position to 100,516 contracts. They sold 524 contracts in feeder cattle, reducing their net-long futures position to 7,751 contracts.

Hog futures posted new contract highs each day last week as traders continued to support the market due to supportive fundamentals. Cash did not fare well Friday with the National Direct Afternoon Hog report posting a loss of $3.64. But despite the weakness in cash that was evident during the day, traders continued to support the market. Pork cutout values increased by $0.82 as demand remained strong. The packers may be cautious to begin the day, waiting to see weekend demand, but they may step in and bid aggressively for hogs to take advantage of cash weakness on Friday. Traders may continue to support the market, even though it is overbought. The Commitments of Traders report showed the fund traders adding 14,523 futures contracts, increasing their net-long position to 107,169 contracts and a new record net-long position.

	BULL SIDE		BEAR SIDE
1)	Cattle futures may have corrected sufficiently to relieve the overbought status with traders potentially willing to buy the break.	1)	The continued weakness of boxed beef indicates slowing demand as consumers struggle with high food prices.
2)	The recent weakness of boxed beef is expected to be temporary with demand holding steady or improving through the end of the year.	2)	The packers were not aggressive with cash last week and purchased the needed cattle. They may be in a position to maintain lower bids this week.
3)	Hogs continue to trend higher as traders are bullish on pork demand and the supply of hogs.	3)	The December and February hog contracts have gaps below the market that may be filled either on a price correction or on a change in trend.
4)	Consumers seem to have increased pork consumption due in part to high beef prices. The packers maintain higher slaughter to meet the increased demand.	4)	A record-long position by the fund traders may increase the potential for a significant price correction. They may become nervous holding those positions and decide to take profits, which may trigger substantial selling.