Wednesday Morning Livestock Market Update - Feedlots Expect Higher Cash

GENERAL COMMENTS:

The increase in cattle futures did not do justice to the increase of cash already this week. Packers were willing to pay as much as $4.00 higher than last week and some feedlots were willing to accept those higher bids rather than hold out for more later in the week. This can be looked at two ways. Feedlots need to move cattle and wanted to get on the list rather than wait for potentially higher bids and risk not getting cattle sold for another week. Also, feed is not cheap and the longer market-ready cattle are held the less profitable they might be. Futures continue to lead the way higher, giving feedlots some confidence packers will pay more. Strong boxed beef prices indicate demand is surging as consumers want beef for grilling and restaurants want beef to satisfy customer demand. Packers need to purchase cattle and are hopeful bidding $4.00 higher early may get the job done.

Hogs seem to be struggling a bit due to slightly lower prices again on the National Direct Hog report, along with cutouts not showing as much strength as they once had. Prices could be reaching a plateau after an incredible run higher. However, demand remains strong and concern over tightening pork supplies in the second quarter is on the forefront of packers' minds. Deferred futures were the ones showing strength Tuesday with triple-digit gains in October 2021 through May 2022 contracts.

	BULL SIDE		BEAR SIDE
1)	Higher closes and new contract highs in June through December futures bodes well for the market. Traders are buying into the market for the long haul.	1)	Cash trading early in the week many times sets the stage or price for the rest of the week even though some feedlots will hold out until later. Packers may not be inclined to bid more.
2)	Surging boxed beef prices indicate strong demand as consumers are not shy about spending money. Restaurant demand continues to increase.	2)	Cattle futures are overbought and could be ready for a price retracement similar to what they did last time it reached this level.
3)	Tightening hog supplies should keep packers aggressively bidding for available hogs. Domestic demand is competing with international demand.	3)	Cash hogs seem to be struggling recently which may indicate price resistance has been met and the retail and restaurant pipeline is adequate for now.
4)	Futures remain in an uptrend with funds continuing to add to net-long positions, the trend is likely to continue.	4)	There are downside price gaps that need to be filled with futures price activity Tuesday bringing into question the upside price potential in the near term.