Wednesday Morning Livestock Market Update - Cattle Unable to Find Support

GENERAL COMMENTS:

Cattle futures fell out of bed Tuesday led by the sharp decline of feeder cattle. As has been the case the past few weeks, cattle traded early with cash cattle moving at $118 to $119 while dressed prices were $190 to $191 and steady with last week. But steady prices just cannot cut it with rising feed prices. Processor margins are around $700 per head as boxed beef prices continue to increase. High grain prices continue to push cattle producers into selling aggressively and even at lower weights to limit feed consumption. Packers continue to use this to their advantage, as feedlots are anxious to move cattle. The continued decline of futures is encouraging the liquidation as feedlots see lowering price potential. June cattle futures had been establishing a sideways trading pattern, but support was penetrated Tuesday. The market is oversold, but that is meaningless in this market environment.

What cattle are losing, hogs are gaining. Packers remain very aggressive with prices up $3.53 on the National Direct Afternoon report. All futures contracts established new highs again Tuesday with June moving to the highest level since 2014. Pork cutouts were lower with a decline of $0.48. However, that will not have an impact as demand is strong, but the concern of packers over hog supplies is the driving force in the market. Product is moving to the consumer, along with plenty of space in cold storage for pork. However, there is less desire to put too much in inventory when prices are high as no one wants to hold high-cost inventory for an extended period of time. With current escalating price and tightening supply, pork moving to inventory now may be worth a good bit more in the next month or two. The risk will be demand destruction at some point.

	BULL SIDE		BEAR SIDE
1)	Cattle weights have declined, which means cattle are being pulled forward. This could limit beef supply down the road.	1)	June cattle futures broke through support, which may open the door for further technical liquidation.
2)	Futures are oversold, which could trigger a price correction if packers cannot get enough cattle and have to increase bids.	2)	Escalating grain prices continue to have a negative impact on cattle prices as feedlots want to move cattle rather than hold for higher prices and end up losing more money.
3)	Continued strong buying by packers is pushing hog futures higher. This adds more fear to the market over higher prices.	3)	A chart gap remains under the June, July and August hog contracts that was left there at the open on Monday. These will likely be filled.
4)	New highs in lean hogs continue to be established on nearly a daily basis. Traders are not shy about buying aggressively even at these lofty levels in anticipation of further gains.	4)	The higher pork prices move, the closer it comes to domestic or international consumer price resistance.