Monday Morning Livestock Market Update - Traders Increase Record-Long Hog Futures Position

GENERAL COMMENTS:

The market anticipated cash would be lower and that took place Friday. Both Northern dressed cattle and Southern live cattle traded $3.00 lower as feedlots needed to let their cattle go and not hold out for another week. The weakness of boxed beef indicates slower demand. That may not bode well for this week either. The packers continue to work the slaughter pace to their advantage and will continue to do so as they need to improve margins with boxed beef prices continuing to decline. On Friday, boxed beef was lower in both categories with choice down $1.53 and select down $0.53. The WASDE report released Friday was positive as USDA raised their estimated cattle prices for the next four quarters. Bear in mind these are estimates and market fundamentals may dictate otherwise as time progresses. The Commitments of Traders report showed the fund traders added 937 contacts of live cattle, bringing their net-long futures position to 101,453 contracts. They added 2,379 futures contracts of feeder cattle, bringing the net-long position to 10,130 contracts.

Hog futures continue to hold well despite the recent selling in the nearby December contract as bull spreads were unwound and are moving closer in line with cash. The February and later contracts made new highs Friday, supported by strong demand and the strength of cutouts. Cutouts values gained $4.42 Friday, supported by a huge increase in bellies of $19.54 and ribs up $5.38. Cash did not fare as well with the National Direct Afternoon Hog report showing a loss of $3.36. The packers may not be aggressive Monday as they may wait to see the weekend pork movement before being more aggressive. USDA increased price expectations for pork for the next year on the WASDE report. The Commitments of Traders report showed fund traders remaining bullish on the market, adding 13,900 futures contracts, bringing their net-long positions to 121,069 contracts and another record long position.

	BULL SIDE		BEAR SIDE
1)	Cattle futures have corrected from their overbought technical status which may increase the desire of traders to step back in for the longer term once the Goldman Roll is finished this week.	1)	Cattle futures are trending lower and further losses could trigger increased selling by the fund traders.
2)	The December live cattle and the November and January feeder cattle contracts have chart gaps above the market that may be closed at some point.	2)	Lower boxed beef prices reflect lower demand which will keep packers less aggressive..
3)	Strong demand for pork continues to support the market and keep traders willing to hold and add to their long positions.	3)	The fund traders hold a record-long futures position, and any fundamental weakness could trigger selling.
4)	The hog numbers that had been anticipated are not out there. Packers are more aggressive with their weekly purchases.	4)	The hog supply may not be as abundant as anticipated but there remains sufficient hogs available for demand, which may limit the aggressiveness of packers.