Wednesday Morning Livestock Market Update - Demand Uncertainty Grips Market

GENERAL COMMENTS:

Traders were searching for direction in the cattle complex, but without cash activity and weakness in boxed beef, futures drifted through the end of the day. There is optimism for higher cash trade as feedlots put out some offers in the South yesterday at $1.00 to $2.00 higher. Northern offers have not yet been revealed but are expected to be similar. Cash is not expected to trade Wednesday with most business maybe being done after the World Agricultural Supply and Demand report Thursday and impact of grain prices is assessed. Boxed beef was a bit of a disappointment Tuesday with both categories lower. Choice was down $1.61 with select down $1.27. This one-day decline should not influence cash activity, but it does need to be monitored to see whether consumers have reached a threshold.

Hog futures were under pressure from the start, unable to recover the losses. The February contract came within 20 points of closing the chart gap, leaving this a strong possibility of happening early Wednesday. With the National Direct Afternoon Hog report again showing weakness with cash down $0.57 and cutout values down $0.62, further weakness is likely today. How traders will react to the closing of the chart gap in February is uncertain. Many times, the market will move in the opposite direction once the gap is closed, but hog fundamentals show little reason to see prolonged strength. Strong slaughter pace keeps putting a lot of pork on the market that is not being absorbed as readily as hoped.

	BULL SIDE		BEAR SIDE
1)	Packers will have to pay at least steady cash for cattle this week as feedlots will hold for higher prices due to lower weight gains and higher feed costs through the adverse weather conditions late last month.	1)	The weakness in both categories of boxed beef could signal that consumers may have reached a threshold resulting in slowing demand.
2)	Live cattle moved very close to making new contract highs Tuesday. Higher cash trade could push futures above those levels, generating more buying interest.	2)	Packers may begin to slow slaughter pace to maintain and improve packer margins.
3)	Closing the chart gap in February could trigger short-covering as the downside technical target would be reached.	3)	February hogs will likely move down to close the chart gap or maybe even technical support below that level.
4)	Strong slaughter pace is moving a lot of hogs through the system, which should clean up abundant supplies and tighten availability.	4)	The February contract still holds a premium to cash and the index. Cutout weakness is providing no support.