Wednesday Morning Livestock Market Update - Further Pressure Possible in Cattle Complex

GENERAL COMMENTS:

Feeder cattle came under pressure earlier in the day, even before corn price began rising substantially. The weakness was compounded as stops were triggered resulting in Katie-bar-the-door selling. This put pressure on live cattle dispelling some of the hope of steady futures until cash activity develops. With the sharp rise of corn futures, there is concern feedlots may be willing to part with cattle for steady money rather than hold out another week. The jury is still out on that, as widespread bids or offers were not posted Tuesday. Boxed beef prices were higher with choice up $0.79 and select up $0.33. The Commitment of Traders report showed funds are net buyers of 850 live cattle contracts increasing their net long positions to 69,602 futures contracts.

Hogs were resilient Tuesday, turning away for the initial pressure that spilled over from cattle, pushing up to close higher on the day. The exception was the February contract closing lower due to spread trading activity. The market scored a second day of higher cash with price on Tuesday's National Direct Afternoon report gaining an impressive $1.37. The question is whether another day of higher cash will unfold. The hog complex seems to be pushing through the potential bearish implications of Prop 12 with the possibility that adjustments and contracts for hogs to California have already been made. Traders have turned their attention to overall demand potential and tightening supply. The Commitment of Traders report showed funds as net buyers of 3,738 contracts bringing the net total of long position to 57,720.

	BULL SIDE		BEAR SIDE
1)	Feedlots are expected to hold out for higher cash again this week even though showlists are a little higher in the South.	1)	Tuesday may have been day one of a liquidation phase possible resulting in the testing of the recent lows.
2)	Now that feedlots have absorbed the sticker shock of high corn prices, they may increase their resolve that they need more for their cattle to make up for higher feed prices.	2)	The pressure on cattle futures and higher corn prices may leave packers unwilling to increase bids this week.
3)	Hogs showed their resiliency yesterday as the pressure on cattle did not spill over into hogs. Traders remains friendly in the longer term.	3)	Even though cash hogs have been higher, cutouts have declined possibly indicating slower demand.
4)	Higher cash for the second consecutive day is a positive sign for the market with supplies possibly beginning to tighten.	4)	Hog futures may be developing a sideways trading pattern as the industry waits for the impact of Prop 12 on demand.