Tuesday Morning Livestock Market Update - Futures May Find Stability

GENERAL COMMENTS:

Live cattle futures did follow through to the upside Monday, initially making new highs, but prices hit resistance and liquidation took over. Traders decided to take some of the premium out of the market until cash trade is established this week. The Cattle on Feed report will be released Friday but it was too early for that to have been a factor in trading. Boxed beef prices were mixed on Monday morning's report, but closed higher for the day with choice up $0.98 and select up $5.71. This may provide some stability Tuesday. There had been the idea that packers were short-bought last week, but that does not seem to have been the case as 32% of the cattle traded last week were for deferred delivery. This puts a different perspective on the potential that the packers may need to purchase early and aggressively this week. However, cash should remain supportive. Feeder cattle futures may have established a double-top technically, which could keep the market under pressure near term.

Hog futures followed a similar pattern as cattle Monday with a stronger open before buying interest dried up and prices fell. The technical action could have formed a head-and-shoulders top, which could trigger further long liquidation. The National Direct Afternoon Hog report showed cash up $0.46. The packers intend to do business earlier to procure sufficient supplies for this week and position themselves for the holiday week. Cash is expected to be higher again. Pork cutouts gained $0.92. This may stabilize futures Tuesday but may not turn the trend higher.

	BULL SIDE		BEAR SIDE
1)	Cash cattle are expected to trade no worse than steady this week, which should support the market.	1)	Packers were able to purchase a significant amount of cattle for deferred delivery, which may leave them less aggressive this week.
2)	Feedlots are in the driver's seat and will hold cattle over if they do not get the prices they want. Cattle supplies are not burdensome and feed is reasonable and plentiful.	2)	Traders may be less aggressive in buying this week ahead of cash cattle trading and the Cattle on Feed report.
3)	There is a good demand for pork keeping the slaughter pace aggressive. Packers need to purchase hogs to satisfy demand.	3)	Hog futures may be forming a head-and-shoulders top, which could result in further liquidation ahead of the end of the year. This is a strong technical pattern.
4)	Hog supplies are not as large as anticipated and are not backing up in the market. This should support prices resulting in limited downside risk.	4)	Pork cutout prices need to see consistent strength to provide traders with the confidence that strong demand will continue.