Monday Morning Livestock Market Update - Uncertainty May Dominate Futures

GENERAL COMMENTS:

Cattle futures rebounded nicely during the week as the market corrected from its oversold technical condition. Cattle futures seem to have factored in most of the negative news. This gave feedlots confidence to hold for higher cash despite boxed beef struggling for much of the week. Packers needed to purchase cattle and stepped up to the plate. Southern live cattle traded $1.00 to $3.00 higher, with Northern dressed cattle trading as much as $3.00 higher. Northern dressed sales were rather light, which may leave packers short-bought coming into the week. Boxed beef prices were higher, with choice up $0.88 and select up $4.90. The Commitment of Traders report showed fund traders reducing their long futures position in live cattle by 8,656 contracts to a net long of 67,025. They reduced their long futures position in feeder cattle by 358 contracts to a net long of 8,987.

The liquidation phase ran its course on Friday, allowing hog futures to rebound despite further weakness of pork cutouts. Futures had been overdone to the downside. Cutouts declined $1.63 on Friday, holding just above $100. The weakness stemmed from hams down $7.23 and picnics down $3.46. Packers were less aggressive on Friday with the National Daily Direct Afternoon Hog report down $0.64. They may be aggressive again to begin the week and may bid higher to procure the hogs they need early. The Commitment of Traders report showed fund traders as net buyers of 8,673 futures contracts, reducing their short position to 19,118.

	BULL SIDE		BEAR SIDE
1)	The recent death losses from the hot weather are uncertain, but substantial. This may not have a large impact overall, but may provide support to the market.	1)	Boxed beef prices may continue to struggle for a time before seasonal strength may surface.
2)	The resumption of the importation of Mexican cattle through the Douglas port represents only 8% of the cattle imports usually received into the U.S. from Mexico and will not be negative to the market.	2)	Packers may have been able to purchase sufficient cattle late on Friday and early Saturday to provide sufficient supplies for slaughter.
3)	The liquidation of hog futures seems to have run its course, allowing the market to rebound. The expectation for higher cash should provide support.	3)	The weakness of cash hogs and pork cutouts on Friday may keep traders cautious over further strength.
4)	The October hog contract holds a significant discount to the soon-to-expire August contract. This gap is likely to be reduced.	4)	The fund traders remain net short in the hog market, which may limit upside potential without further fundamental support.