Tuesday Morning Livestock Market Update - Cattle Futures May See Further Liquidation

GENERAL COMMENTS:

Feeder cattle futures opened higher Monday and made new highs before reversing and falling back into the close. Some of the selling may have been due to the market being overbought, but some of it may have stemmed from the news that Cargill will cut 5% of its workforce over time due to shrinking profits. Some of those cuts will be to its meat processing division as it has pressured margins. This may not impact overall beef processing in the nation but it may have been enough to trigger some selling as traders react to the news. This does not change the bullish aspect of the cattle herd and tight supplies. Boxed beef prices were higher with choice up $2.49 and select up $2.70, indicating continued strong consumer demand. However, traders will be cautious due to the amount of cattle purchased for deferred delivery last week. The Commitments of Traders report showed fund traders adding 6,497 long futures positions in live cattle, bringing their net-long total to 118,350 contracts. They increased their net-long positions in feeder cattle by 3,036 contracts to a net-long position of 15,467 contracts.

Hog futures found strong buying interest Monday, reversing the losses from Friday and pushing June through October to new contract highs. Both June and July closed above $102, indicating traders remain bullish on the market moving into the end of the year and through 2025. Packers were aggressive as they needed to meet demand and continue to keep a strong slaughter pace. The National Direct Afternoon Hog report showed cash up $0.18 with greater packer interest expected Tuesday. Cutouts showed strong gains with values up $2.35. December is generally a strong month for demand and this year may be no exception. Hog numbers also seem to be tighter than reported earlier. The Commitments of Traders report showed fund traders increasing their net-long position by 7,074 contracts to a total of 130,169 futures contracts and a record net-long position.

	BULL SIDE		BEAR SIDE
1)	Market reaction to the news of Cargill cutting jobs that would have some impact on their meat processing division may have been a knee-jerk reaction and not a long-term impact.	1)	Feeder cattle futures were overbought and Monday's weakness may have triggered a liquidation phase.
2)	The cattle market was overbought and needed to be corrected. The weakness may be seen as a buying opportunity as cattle numbers remain tight.	2)	Packers may not be as aggressive this week as they were able to purchase cattle for deferred delivery last week. They may continue to reduce the slaughter pace to improve margins.
3)	Hog futures continue to make new contract highs as traders trade the trend. Hog supplies do not seem as plentiful as reported earlier this year.	3)	Hog futures again find themselves at a record net-long position. Any bearish indication might trigger substantial selling.
4)	Packers are maintaining a strong slaughter pace to keep up with demand and improved packer margins.	4)	The packers have been able to purchase sufficient hogs for increased processing speed without difficulty. This may limit what they will pay for hogs.