Thursday Morning Livestock Market Update - Hog Futures Poised To Retest Highs

GENERAL COMMENTS:

There was no cash trading activity in cattle Wednesday and none was expected. Futures tried to turn higher but slipped lower in most contracts. It seemed traders were uncertain about higher cash this week. However, the continued strength of boxed beef may require packers to increase bids to purchase cattle. The packers cannot ignore the fact demand is good and needs to be met. Feedlots have posted offers in the South at higher prices and may be able to achieve those prices. Boxed beef was higher with choice up $2.30 and select up $0.28. The feedlots may increase their resolve to hold another week, knowing packers cannot afford strong demand and the need to increase the slaughter pace. The demand for feeder cattle remains strong with tighter supplies and the desire to maintain cattle numbers on ranches and feedlots.

Hogs did an about-face on Wednesday, even though there has not been huge support from cash and cutouts. Trader optimism remains bullish. The December, February, and April contracts reversed the losses of earlier in the week and are poised to move to new highs and possibly test the contract highs. The National Direct Afternoon Hog report showed cash up $0.63. Pork cutouts gained $0.45. The December contract may move to narrow the gap it had to where the October contract expired. There may be a little headwind Thursday as cash is expected to be lower. The strong slaughter pace and the hog numbers seemingly not out there which had been expected are keeping support under the market. Weekly export sales will be released on Friday. Saturday slaughter is estimated at 197,000 head.

	BULL SIDE		BEAR SIDE
1)	Boxed beef prices continue to improve, indicating strong demand. Packers need to maintain or increase the slaughter pace to meet that demand.	1)	Feedlots may need to move cattle they have been holding for the past two weeks in the hopes of higher cash prices. If the packers hold the line on cash this week, cattle will be sold at no better than steady money.
2)	Cattle futures may have corrected sufficiently to relieve the overbought status of the market. Traders may feel more confident buying back into the market.	2)	Each time cattle futures rallied after a large price correction, the highs were lower. The recent weakness may indicate another large price correction is underway.
3)	Hogs reversed the losses of early this week and are now poised to move above resistance and test contract highs.	3)	Hog futures show more optimism than what underlying cash is dictating. Cash and cutouts will need to improve or a large price correction may occur.
4)	The packers have not been very aggressive so far this week and may need to step up during the second half of the week.	4)	Hog weights increased by 0.6 pounds last week averaging 285.4 pounds, up 1.9 pounds over a year ago.