Tuesday Morning Livestock Market Update - Early Follow-Through Selling Expected

GENERAL COMMENTS:

Feeder cattle fell significantly on Friday as traders were fearful of the placement number on the Cattle on Feed report. The trade expectation was for placements to be 3% higher than a year ago, but the actual was 6% higher. The question is whether this has been factored in, given the substantial declines on Thursday and Friday, or whether further long liquidation will occur. Added to this were higher on-feed numbers. On feed as of May 1 were 2% higher than a year ago. Reduced slaughter has resulted in feedlots holding onto cattle longer and feeding them to higher weights. Higher weights mean more beef per animal, which does not reduce the tonnage of beef available through reduced slaughter. Marketings in April were 10% below a year ago and should not have much influence on the market. Follow-through selling is likely, but some of the bearishness is already factored in. Boxed beef on Friday showed choice down $1.21 and select down $0.65. The Commitment of Traders report showed fund traders reducing their net-long live cattle position to 127,747 futures contracts, down 1,207. Funds increased their long position in feeder cattle by 910 contracts to a total of 18,819. This is as of last Tuesday.

Hog futures were finally able to bounce in the nearby June and July contracts, but that provided little consolation after the recent substantial decline. The market is oversold technically, but that may be meaningless if the fundamentals do not improve. The National Direct Afternoon Hog report showed cash down $0.35 on Friday. Packers may step up aggressively today as they intend to make up for the holiday. Pork cutout values were up $0.62 on Friday. The Commitment of Traders report showed further liquidation by the funds. They were net sellers of 6,401 futures contracts, reducing their net-long position to 22,810.

	BULL SIDE		BEAR SIDE
1)	The Cattle on Feed report may already be factored in with the substantial decline in feeder cattle over the past two days.	1)	Placements in April were bearish, being 6% higher than a year ago. These will eventually be ready for slaughter.
2)	Beef movement over the Memorial Day weekend is expected to have been good. Retail will need to restock beef supplies.	2)	Fund traders are long in the market and may continue to liquidate more of their positions. The top may be in.
3)	Hog futures are oversold and ready for a bounce. Traders may buy the break in anticipation of increased pork demand this summer.	3)	Hog traders have little reason to buy into the market based on fundamentals. Both cash and cutouts continue to struggle.
4)	Packers are likely to be aggressive early this week and increase slaughter to make up for the holiday. Higher cash should provide support.	4)	Hog runs have yet to shorten up as had been anticipated. Increased pig per litter may not result in a tighter supply.