Wednesday Morning Livestock Market Update - Uncertain Demand Impacts Futures

GENERAL COMMENTS:

After live cattle futures made new highs Tuesday selling pressure got the upper hand, moving prices back down and both August and October ended with losses. It seemed to be a matter of the market overreacting to the Cattle of Feed report with buying interest running its course. Later contracts closed higher with the anticipation of tighter cattle supplies down the road and the desire to add premium to deferred contracts. Boxed beef prices declined after a multiple week surge of prices. Choice cuts were down $0.45 with select cuts down $2.50. This could be the turn in trend that had been anticipated as Labor Day draws closer. Some asking prices surfaced Tuesday higher than last week's trade, but no bids from packers. Even though boxed beef prices had been surging and cattle supplies may tighten, weakness of boxed beef may limit packer willingness to pay higher. Feeder cattle came under pressure as a reaction to stronger grain prices.

Hog futures could not find its legs Tuesday. Prices tried to hold but saw steady pressure as the day progressed. Traders seemed more focused on further weakness of cutouts rather than on the rise of cash. The National Direct Afternoon report showed price jumping $4.14. Cutouts declined $2.25, turning traders more negative as the bottom in cutouts still remains elusive. Cash prices can fluctuate on a daily basis depending on whether packers need to purchase more aggressively one day versus another day. But cutouts are where the rubber meets the road as an indication of consumer demand.

	BULL SIDE		BEAR SIDE
1)	New contract highs were made in live cattle futures Tuesday, indicating the higher trend may continue.	1)	Cattle may have factored in a tighter market down the road with little room for further upside due to the significant premiums already contained in later contracts.
2)	Higher futures this week will give feedlots the confidence to hold for higher cash even though boxed beef may begin to show weakness. Packers can easily pay more for cattle.	2)	Potentially higher grain prices could increase pressure on the market as feedlots do not want to hold cattle longer than they need to.
3)	Packers were more aggressive purchasing hogs in the country Tuesday. They may see stronger consumer demand returning after Labor Day.	3)	The short-term trend seems to have turned down again as cutouts continue to struggle.
4)	October maintains a historically large discount to the index. The current spread is twice as wide as the five-year average for this time of year. There is plenty of time for prices to converge.	4)	Hog supplies are sufficient in the country, leaving packers less aggressive overall.