Wednesday Morning Livestock Market Update - Follow-Though Buying Expected

GENERAL COMMENTS:

The cattle complex found some support from lower corn prices is the general correlation. However, the greater support continues to be tighter supplies and continued strong beef demand. Cattle futures soared to new contract highs. Tuesday, boxed beef was higher with choice up $1.03 and select up $2.85. Higher boxed beef and lower corn may have feedlots holding out for higher cash. Packers have better margins than a year ago but will not want to pay more than they need to. Last week, of the cattle they purchased, 30% were for deferred delivery, which could make this week interesting. It is a holiday-shortened week, so some cash could trade Wednesday. Feeder cattle pushed substantially higher and not far from limit up Tuesday, but they did not hold the full gains. This is an indication the market has not reached a peak and, even though overbought technically, there is no indication of a top.

Hogs were on fire after a moderate start to the day. Buyers turned more aggressive, likely tied to the desire to take some profits ahead of the end of the month. This short-covering triggered stops and propelled the oversold market higher. Yes, cutouts were higher Friday, but cash was not. A price rally of this magnitude was not only due to higher cutouts. Cutouts were higher Tuesday with an increase of $1.48. The National Direct Afternoon Hog report recorded an average weighted average price of $75.15, but no change from the previous day due to no prices Monday. With futures closing limit up, there is the potential for follow-through buying Wednesday. However, the price rally may be limited.

	BULL SIDE		BEAR SIDE
1)	New contract highs for cattle continue to fuel the buying interest. Tighter cattle supplies continue with some drought concerns again developing.	1)	Futures cannot continue higher indefinitely and the market is overbought and ripe for a correction.
2)	Consumer demand for beef continues to remain strong even as all food prices have increased.	2)	Packers purchased cattle ahead for deferred delivery which may temper some of their buying interest this week.
3)	Hogs likely saw some profit-taking into the end of the month, which could see follow through Wednesday.	3)	June hogs closed the chart gap that remained from Thursday with July's gap possibly being closed today, which could cap the price rally.
4)	Pork cutouts were stronger Tuesday, which could provide support Wednesday.	4)	If this is tied to end-of-month short-covering, it may have limited upside potential as the market wrestles with the uncertainty of Prop 12.