Tuesday Morning Livestock Market Update - Hogs May Show Further Gains

GENERAL COMMENTS:

Live cattle spent most of the day in positive territory, closing near the highs of the day. Even though packers have some cattle already committed for the next few weeks, increasing slaughter rates may require them to bid steady to higher this week in the cash market. However, traders will wait to see confirmation of cash before becoming too excited. The higher corn prices may have feedlots wanting to move cattle quickly rather than holding for better prices. Boxed feed showed choice up $1.36 and select up $1.77. Feeder cattle were under pressure due to higher corn futures. However, the losses were confined to double digits. August feeders made a new contract low before rebounding, limiting the loss. The Commitment of Traders showed funds as net sellers of 8,948 live cattle contracts, bringing their net total longs to 29,949 contracts.

Hog futures shined again Monday with triple-digit gains in contracts throughout the next year. It was a second day of strong buying as traders were short-covering and buying to establish long-term positions. Futures gapped higher on the open and never looked back. June closed the gap on the upside, but contacts left a gap on the bottom again. Cash was slightly higher on the National Direct Afternoon hog report, showing a gain of $0.17. Cutouts had a gain of $0.38. Cutouts may see more strength as consumers prepare for Memorial Day. The Commitment of Traders report showed funds as net sellers of 8,934 contracts, moving their net long positions to 20,608 contracts.

	BULL SIDE		BEAR SIDE
1)	Live cattle futures increased in the face of significantly higher corn futures. There is anticipation that packers may need to be more aggressive due to increased slaughter pace.	1)	Packers may not need to be aggressive this week, even though slaughter seems to be increasing. Higher corn price may have feedlots wanting to move cattle quickly.
2)	Corn futures look to trade lower Tuesday, which may provide some support to feeder cattle.	2)	There are a lot of cattle that will be ready to come to the market over the next month or so that need to be absorbed, which may keep futures holding a discount.
3)	Hogs had two strong days of buying with short-covering generally running three days. Further follow-through strength is possible.	3)	The higher opening in hog futures left a chart gap Monday, which may need to be backfilled at some point.
4)	August and later contracts have chart gaps to fill above the market, which may be the next target for technical traders.	4)	This may be a short-covering rally that is not yet supported by higher trending pork cutouts. This could limit the upside.