Friday Morning Livestock Market Summary - Lean Hog Futures Search for Additional Support

 General Comments:

Light but scattered cash cattle trade started to become more evident Thursday. Although there still appears to be additional trade needing to take place before the end of the week, the sales activity seen over the last couple of days is likely to have set the underlying tone of the market. Live trade in the South is reported at $107 to $108 per cwt, while dressed business in the North is seen at $168 to $169 per cwt. This is generally steady to $1 per cwt higher than last week's price levels. Moderate trade is expected Friday, but without a major shift in outside market movements it is likely the tone may be set for the week. The ability to continue the upward price trend while futures trade has retracted significantly through the week is slightly encouraging, even though weekly cash market support is well below what many hoped for and expected for the week. Futures trade is expected to remain mixed to mostly lower as additional outside market influences are likely to continue to limit buyer support. Ahead of Friday morning's WASDE report, which many feel could be bullish for the grain market, cattle traders remain extremely cautious given the potential to further increase short- and long-term production costs of all cattle within the system. This will likely keep the feeder cattle futures in the driver's seat as traders continue to look for market protection at the end of the week. Even though the cattle complex continues to show bearish market tones, the potential for late-week short-covering during early trade Friday could limit initial losses. The sharp move lower in feeder cattle trade has essentially gone unchecked over the past week and a half, allowing the potential and opportunity for buyers to square positions despite the continued weaker market trend.

Lean hog futures continue to be fueled by the impact of strong export sales in Thursday's report. The increase in overall movement was significant because new sales were not just focused on China, but several trading partners. Traders quickly responded with aggressive triple-digit gains in nearby contract, moving spot December contracts well above initial resistance levels of $66 per cwt Thursday morning, eventually closing at $66.85 per cwt. The support is expected to spark additional underlying buyer support at the end of the week with continued expectations that the increased export activity can and will be continued over the near future. Lean hog trade is also benefiting from the quick and aggressive market erosion in the cattle complex. At this point, traders are moving into nearby lean hog futures given upward price shifts and potential for further gains, while trying to escape further pressure in cattle trade. Cash hog prices are expected $1 lower to $1 higher with most bids expected steady to 50 cents higher. Slaughter Friday is expected at 484,000 head. Saturday runs are expected at 279,000 head.

	BULL SIDE		BEAR SIDE
1)	Cash cattle support continues to trickle into the market despite widespread pressure in futures trade. Packers continue to be focused on gaining access to needed cattle with the expectation that market-ready cattle supplies will start to slowly tighten over the coming weeks.	1)	Sharp triple-digit losses in feeder cattle trade continue to negatively influence the entire cattle complex. Growing concerns of sustained higher feed and production costs continue to be the main driver in cattle markets during early October.
2)	Strong export beef sales were reported Thursday, with several countries showing moderate to firm increases. The ability to move additional beef product at this time continues to remain encouraging as it helps to widen the scope of further export sales over the coming months.	2)	Following the release of actual slaughter data released Thursday afternoon for the week of Sept. 26, the firm increase in carcass weights continues to add bearish undertones to the market as the complex struggles with increased supply levels going into a period of limited beef demand growth.
3)	Strong cash hog buying redeveloped Thursday, creating hope that further increases will follow in the upcoming days and weeks. Packers continue to actively search to gain access to market-ready hogs in order to fuel aggressive procurement levels.	3)	The surge higher in nearby lean hog futures is leaving the complex ripe for a market correction, despite potential bullish market tones. This could quickly add price volatility into all futures contracts.
4)	Sharp gains in December lean hog futures trade sparked increased buyer support across the complex. This moved spot-month futures to 9-month highs, as traders focus on further potential growth in pork exports.	4)	The recent lean hog market rally is disproportionally focused on spot-month contracts with limited support seen in other nearby and most deferred contracts. This is creating concerns that the momentum seen over the last week may not be able to be sustained once outside markets stabilize and traders move back to their usual commodity complex.