Tuesday Morning Livestock Market Update - Futures May Struggle

GENERAL COMMENTS:

Cattle futures were under pressure for a second consecutive day. Lower cash triggered the first round of selling on Friday, with cash trading $3.00 to $4.00 lower. Over the weekend, the union representing JBS workers at the Greeley plant gave the required seven-day notice that they were canceling the contract extension. This opens the way for a strike on March 16. That did not sit well with traders, resulting in the market leaving a huge gap on the open as traders quickly moved to liquidate long positions. Some of the initial losses were recovered, but a large price gap remained at the close of trading. This may be difficult to overcome as the weakness may put pressure on cash prices again this week. Boxed beef prices were higher on Monday, with choice up $4.07 and select up $4.67. This may not be sufficient to support the market today as uncertainty overshadows the market.

Hog futures were likely the recipients of spillover pressure from cattle, but also the pressure from sharply higher crude oil early in the day. However, as cattle recovered somewhat from the lows and crude oil fell substantially from the highs, futures were able to find support. Contracts closed lower, but rampant liquidation was avoided. Packers were aggressive to begin the week with cash on the National Daily Direct Afternoon report up $0.26. Packers should be active today as they purchase hogs to maintain the increased slaughter pace. Pork cutout values were strong, posting a gain of $3.05 and pushing the price to $101.32.

	BULL SIDE		BEAR SIDE
1)	Cattle futures have a large gap from Monday above the market that will be filled at some point.	1)	If the JBS strike takes place, packers may bid lower as there will be cattle diverted to other plants, resulting in more availability and less reason to be aggressive.
2)	Cattle futures carry a substantial discount to cash, which may increase buying interest as the news of the JBS strike is digested, and crude oil prices have fallen back substantially.	2)	Significant damage has been done to the price charts, which may be difficult for the market to overcome in the near term.
3)	Packers being aggressive on the cash market on Monday and likely again today may support futures as traders regain confidence.	3)	Differed hog futures had put in 12 consecutive days of higher highs. The market may see a further price correction due to Monday's weakness.
4)	Pork cutouts were significantly higher, along with the increased slaughter pace. This is a sign of strong pork demand.	4)	Packers continue to have access to a sufficient supply of hogs which may limit the aggressiveness in the cash market.