Wednesday Morning Livestock Market Update - Initial Weakness Expected in Hog Futures

GENERAL COMMENTS:

There is an element of bearishness evident in the market as the outlook remains somewhat negative. Cattle numbers are higher than earlier anticipated with the upcoming Cattle on Feed report estimated to continue to show a similar pattern of larger numbers as the previous report. Yet despite that, live cattle futures have increased nearly $5.00 over the past three weeks with futures above the level they were at the previous report last month. The reason is due to the fact the market needed to return more in line with where it should be relative to cash. Boxed beef gained Tuesday with choice up $0.79 and select up $1.72. The recent choppiness of boxed beef may indicate a bottom might for forming. Cash was quiet Tuesday with packers still on the sidelines. It will be interesting as to what business will develop with the report looming on Friday.

Without cash and cutouts providing support to the recent hog price rally, traders decide to take profits rather than hold for the long term. Price was down $0.27 on the National Direct Afternoon report along with further losses in cutouts of $1.44. Futures moved to the bottom end of the recent trading range with a strong possibility that the remain chart gap will be closed sooner rather than later. China's pork output increased 38% during the first three quarter of this year totaling 39.17 metric tons. China's hog herd reached 437 million head, an increase of 18.2% over the same period last year.

	BULL SIDE		BEAR SIDE
1)	Live cattle futures continue to hold gains, giving the impression support is being established.	1)	Feeder cattle have been a drag on live cattle with concern over the numbers on the upcoming Cattle of Feed report.
2)	Cash is expected to trade steady to higher again this week, but activity may be delayed as packers have not yet established bids with offers not solidly established.	2)	Packers are not expected to pay higher cash this week as cattle are available, keeping plants running at desired levels.
3)	Hog futures have developed a sideways pattern even though underlying cash still has not found solid footing. Traders are purchasing at the lower end of the range.	3)	The lower chart gaps are expected to be filled, which could trigger some selling if price move below that level and stops are hit.
4)	There is a chart gap about $4.00 above the current market that needs to be filled at some point. The anticipation of tighter hog supplies may fulfill this objective.	4)	Cash and cutouts still have not found solid support, leaving the overall market somewhat weak. Hog supply is readily available..