Monday Morning Livestock Market Update - Follow-Through Strength Expected

GENERAL COMMENTS:

Cattle futures opened higher Friday, then fell back, but buying interest pushed contracts to new highs. Cash cattle traded $4.00 to $5.00 higher last week with boxed beef continuing to trend higher. Beef demand is exceptionally strong at these prices with choice boxed beef up $2.06 and select up $5.79. USDA showed supportive estimates for cattle prices on the WASDE report with quarterly steer prices from $4.00 to $6.00 higher than their December estimates. Feedlots continue to maintain leverage over packers. This has resulted from packers holding back on purchases in December as they tried to back up cattle and force feedlots to sell cattle rather than add more weight. This backfired as feedlots have been rewarded for heavier cattle as the packers were short-bought. This has resulted in cash trading higher in an impressive way and it may not be over yet.

Hogs found support from high cash, cutouts, and estimates on the WASDE report Friday. The WASDE reports are estimates and can change monthly, but higher estimates make traders feel better about remaining long in the market. The rubber meets the road with cash and cutouts. The National Daily Direct Afternoon Hog report showed cash up $0.15. Pork cutout values increased by $0.88. The WASDE report estimates showed quarterly hog prices from $1.00 to $2.00 higher, providing hope for better prices as the year progresses. Slaughter remains strong, indicating packers need hogs to supply the demand.

	BULL SIDE		BEAR SIDE
1)	New contract highs in cattle provide confidence to traders to remain long in the market and add to their positions.	1)	Cattle weights continue to increase and may be a detriment at some point if demand slows. Cash weakness could trigger more aggressive selling as feedlots will move the heavy cattle.
2)	Packers remain short-bought and need to step up to purchase cattle for slaughter. Consumer demand remains strong, keeping packers from reducing slaughter pace.	2)	Cattle futures at the $200 level may be the price that could trigger some significant profit-taking.
3)	Hog futures seem to have established a bottom, moving substantially higher over the past two days. The seasonal weakness may be behind us.	3)	A trend higher for both cash hogs and cutouts has not been solidified. The inability to continue gains could cap a price rally.
4)	The better outlook for hog prices as indicated in the WASDE report may further support the market.	4)	The increased slaughter pace has been easily filled as the supply of hogs remains sufficient for demand. Packers have not had to be aggressive in the cash market.