Tuesday Morning Livestock Market Update - Traders Should Remain Aggressive Buyers

GENERAL COMMENTS:

Cattle futures did not spend any time in negative territory Monday, but they also could not hold the highs of the day. Live and feeder cattle futures closed about $1.00 off their highs as some traders became nervous at the lofty levels. Feedlots have set their sights on higher cash this week as strong demand keeps packers aggressive. The weekly weighted averages for both live and dressed cattle set new records last week. The exception was the weekly average for dressed cattle in Kansas. Boxed beef prices were higher with choice up $1.86 and select up a whopping $6.61, likely assuring higher cash this week as demand remains exceptional. The Commitments of Traders report showed funds reducing their long position in live cattle by 898 contracts to a net-long of 131,198 contracts. The funds increased their long futures position in feeder cattle by 1,600 contracts, bringing their net-long position to 20,344.

Hog futures exhibited resilience Monday, rejecting the lows and closed with positive gains in all contracts except the nearby February. Traders could not hold a premium in the February contract on the lean hog index's continued weakness and cutouts' weakness. Cutout values were down $1.71 on Monday at $87.83. This continued pressure is wearing on the resolve of bullish traders and has them second-guessing the strength of demand in the near term. The National Daily Direct Afternoon Hog report showed a slight gain of $0.06. Packers are expected to be more aggressive Tuesday, resulting in higher cash. The Commitments of Traders report showed fund traders selling 13,110 futures contracts, bringing their net-long futures position to 103,907 contracts.

	BULL SIDE		BEAR SIDE
1)	New highs keep the uptrend alive and traders trading with the trend. This is being supported by strong underlying cash cattle trade.	1)	Cattle futures are overbought and a price correction could take place as traders decide to take profits.
2)	Boxed beef prices continue to show incredible strength with the demand for beef not slowing down. Food prices continue to increase but consumers are not cutting out beef in their diets.	2)	High prices will not last forever. The cattle market is trying to find a level at which demand will slow.
3)	It seems traders continue to hold the idea of stronger pork prices. Hog futures have been holding well despite the weakness of cutouts.	3)	The weakness of pork cutouts remains an anchor on the market. The lack of solid demand leaves the potential for further weakness.
4)	Hog slaughter should move back to a regular pace now that the holidays are over. Packers should be aggressively looking for hogs Tuesday.	4)	Packers continue to find plentiful hogs to fill their slaughter needs without difficulty. This limits their aggressiveness in the cash market.