Tuesday Morning Livestock Market Update - Futures Should See Further Support

GENERAL COMMENTS:

Cattle futures opened higher Monday and extended the gains to new contract highs before buying interest ran out. Futures then fell back into negative territory. Live cattle rebounded into the close while feeder cattle closed with losses. The exception was the January feeder cattle contract, which stops trading Thursday. The friendly Cattle on Feed report should fuel the fire for higher prices. Feedlots will hold for high cash again this week. Packers have lost control over the market and would need to cut slaughter drastically to avoid paying higher cash for cattle. This is not likely as boxed beef was up strongly with choice gaining $2.16 and select up $4.26. Demand is strong and the packers need to meet it. The packers continue to purchase some cattle for deferred delivery but have not purchased a sufficient supply and continue to pay more for cattle. Feeder cattle closed lower, but that does not change the trend. Feeder cattle are in demand.

Hog futures closed higher through the October contract and were slightly lower thereafter. Trader optimism is bullish and is carrying the market despite limited support from the underlying cash and cutouts. The National Daily Direct Afternoon Hog report showed cash up $0.01 and begins the week on a stronger note similar to last week. Pork cutouts gained $1.47, indicating demand may be improving. The record-high beef prices should move more demand over to pork as consumers may not continue to pay the high beef prices.

	BULL SIDE		BEAR SIDE
1)	New contract highs in live and feeder cattle keep traders confident over higher prices. This is supported by strong demand and higher boxed beef prices.	1)	Each day the cattle market moves higher means it is closer to the top. The market will not go up forever. High prices always cure high prices.
2)	The feedlots are in control and will ask for higher prices again this week as supplies remain tight and packers need to maintain slaughter to meet demand.	2)	Record-long future positions may trigger a significant price correction once the fundamentals and traders' attitudes change.
3)	Hog futures are poised to move back to the highs as traders are friendly to the market for the long term.	3)	Hog futures will need continued support from cash and cutouts to keep the interest of traders in the market, otherwise the market could sell off again.
4)	The high beef prices seem to be turning more demand over to pork. Consumers will not continue to pay higher beef prices.	4)	Packers have not had to be very aggressive in the cash market as there has been a sufficient supply of hogs. Cash may have limited upside potential.