Friday Morning Livestock Market Update - CME to Raise Trading Limits

GENERAL COMMENTS:

The market was not disappointed in cash trade on Thursday, with Northern dressed sales ranging from $2.00 to $7.00 higher. There were a few sales that took place as much as $15.00 higher. Southern cattle sales were $3.00 to $5.00 higher. Surprisingly, this did not provide further support to cattle futures. Sure, boxed beef prices were mixed, with choice down $1.32 and select up $0.42, but that did not offset the bullishness of cash. Weekly export sales were below the previous week at only 7,500 metric tons (mt), but even that did not offset the bullishness of cash. There may be concern that once Memorial Day demand is finished, beef demand may slow. Another concern is the greater volatility that has developed. This may be enhanced by the CME Group expanding trading limits beginning June 1. Feeder cattle limits move from $9.25 to $10.75 with expanded limits from the current $13.75 to $16.00. Live cattle limits move from $7.25 to $8.50, with expanded limits from the current $10.75 to $12.75.

Packers were not aggressive buyers in the cash market on Thursday, with the National Daily Direct Afternoon Hog report down $2.19 on light activity. Many times, they are not aggressive on Friday, but there is a good chance they may be more aggressive today as they will finish up purchases for the week. Pork cutout values were up $0.52. The June contract is the lead month and carries a significant premium to cash, which may need to be removed unless cash is stronger over the next few weeks. Weekly export sales were down from the previous week, casting some bearishness on the market.

	BULL SIDE		BEAR SIDE
1)	Strong cash should support cattle futures. Prices are substantially below cash, and demand remains strong.	1)	Expanding the trading limits for cattle will result in higher margin requirements. Traders may reduce some of their exposure before then.
2)	Demand for feeder cattle remains strong, with feedlots paying a premium for cattle to fill their lots.	2)	Export sales are slowing due to high beef prices. It makes it more difficult to compete on the international market.
3)	Even though hog futures have been volatile recently, they are trending higher. The deferred contracts are showing the greatest support.	3)	Solid fundamental support remains elusive in the hog market. This will limit upside price potential.
4)	Pork demand may benefit this summer as high beef prices may result in more pork demand for grilling.	4)	Hog numbers remain sufficient in the country, with buyers not having to be very aggressive with their weekly purchases.