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No Sign of Low in Cattle Futures

CATTLE

The market is still probing for some type of near term low, but the continued weakness in the beef market and the cash cattle market, plus the premium structure of futures above cash are factors which have led to lower trade for December cattle for the sixth session in a row on Friday. The COT report shows a long liquidation selling trend and technical indicators are not at an extreme as of yet. December cattle closed down 295 points for the week last week. The technical action remains weak and the beef market remains in a steep downtrend in recent weeks. Futures are attempting to hold a premium to the cash market, but cash markets traded $1.00 lower again last week. The USDA boxed beef cutout was down $2.28 at mid-session Friday and closed $2.62 lower at $292.36 and was the lowest the cutout had been since August 4. Cash live cattle traded in moderate volume on Friday at steady to soft prices. In Iowa/Minnesota 2,323 head traded at 122-123, with an average price of 122.08 and down from an average of 122.96 the previous week.

The Commitments of Traders showed managed money traders were net sellers of 5,934 contracts of live cattle for the week ending September 28, reducing their net long to 28,770. This is a long liquidation selling trend. Average estimated dressed cattle weights for the week ending October 2 came in at 828 pounds, up from 825 from the previous week. The USDA estimated cattle slaughter came in at 107,000 head Friday and 57,000 head for Saturday. This brought the total for last week to 637,000 head, down from 641,000 the previous week

LEAN HOGS

 While we can’t rule out more buying from fund traders, the market seems to have priced-in much of the sharp reduction in supply versus trade expectations for the September USDA hogs and pigs report. Short-term, the market looks a bit overbought and if pork values turned down, cash markets could drift lower as supply increases in the next month. December hogs were quiet on Friday as traders are absorbing the massive increase in price with a gain of 812 points for the week, up 10.5%. China was a good buyer in the weekly export sales report, but traders are hesitant to believe that they will continue to be an aggressive buyer given the collapse in China pork prices so far this year. December is still trading at a wider than normal discount to the cash market. The CME Lean Hog Index as of September 29 was 92.90 down from 92.92 the previous session but up from 91.89 the week prior. This leaves December hogs holding a $7.60 discount to the cash market as compared with a normal discount of $2.50. The turn up in open interest and the still wide basis are seen as positive forces.

However, the USDA pork cutout, released after the close Friday, came in at $111.21, down from $115.24 on Thursday but up from $109.14 the previous week. The USDA estimated hog slaughter came in at 475,000 head Friday and 163,000 head for Saturday. This brought the total for last week to 2.524 million head, down from 2.578 million the previous week. Estimated US pork production for the week ending October 2 came in at 529.5 million pounds, down from 539.1 the previous week. Friday’s Commitments of Traders report showed managed money traders were net buyers of 9,775 contracts of lean hogs for the week ending September 28, increasing their net long to 65,633. Non-commercial, no CIT traders were net buyers of 4,755, increasing their net long to 43,122. Non-commercial & non-reportable traders were net buyers of 5,066, increasing their net long to 65,382.

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