Wednesday Morning Livestock Market Update - Futures May Have a Difficult Recovery

GENERAL COMMENTS:

The continued weakness of boxed beef has moved into the spotlight and is driving much of the trade. Cash cattle have not yet traded for the week, but expectations have been reduced to no better than steady with last week. Feedlots in the South are asking higher prices while there have been no offers posted in the North. The pressure stems from boxed beef prices. The price of choice cuts has reached the lowest level this year. This may result in packers reducing chain speeds, which will reduce their need for cattle. Boxed beef Tuesday closed lower with choice down $0.66 and select down $1.97. Feeder cattle felt the pressure of live cattle and could not find support even from lower corn prices.

Hogs fell out of bed with February and April contracts down over $3.00 and triple-digit losses extending through August 2023. Underlying cash and cutouts were not the culprit with traders following the path of least resistance similar to about a week ago. The December contract was immune to the selling pressure as it remains close to cash and the index with a week remaining to trade. The National Direct Afternoon report showed cash up $0.43 and cutouts posting a gain of $3.36. Slaughter continues to remain strong with packers looking for hogs to fill demand.

	BULL SIDE		BEAR SIDE
1)	Tightening cattle supplies should provide some support to the market. Reduced chain speed should continue to keep supply current.	1)	Packers are expected to reduce chain speed soon to protect dwindling margins. Traders are anticipating a decline in cash.
2)	Packers do not seem to have many cattle purchased ahead for the week. Cash may trade no worse than steady.	2)	Slowing demand is reducing beef prices, which will require less cattle to satisfy demand. Thinner cattle supply would still meet demand without higher prices.
3)	The sharp decline of hogs Tuesday seems to be spillover from other outside commodity markets and not from its own fundamentals.	3)	The question is whether the rebound of hog futures last week was warranted or if it was overdone and the market is now near a level of balance.
4)	China is reducing their COVID restriction further, which will open the country more. This would be seen as positive to demand.	4)	Hog futures may be carving out a trading range that may be wide and volatile, pushing some traders to the sidelines.