Thursday Morning Livestock Market Update - Cattle May See Further Weakness

GENERAL COMMENTS:

After a slightly higher start to the day, selling became aggressive Wednesday, pushing cattle lower despite there being no direction from cash sales. The market gives the impression it has run out of steam as prices have moved relentlessly higher. However, the gains were justified as cash continued to increase. We are moving closer to July 4th and the dog days of summer, during which beef demand may slow. The high prices may also impact export demand, leaving more for domestic consumption. The action Wednesday may be a much-needed price correction, or it could be an indication of a change in trend. Boxed beef prices were again mixed with choice up $1.07 and select down $0.22. Cash should trade Thursday with the anticipation of steady prices. Feeder cattle were unable to find support anywhere. Lackluster corn prices provided no correlation to trade with futures swinging $5.00 to $6.00 from high to low. This was similar to the move we saw one week earlier after establishing new contract highs.

Hog futures pushed higher with strength right from the start. Chart gaps were left in the August and October contracts on the open, which may be filled. Some liquidation by the funds has taken place, propelling the market higher. Packers have been more aggressive with their purchases over the past few weeks. The National Direct Afternoon Hog report showed cash up $0.17. This might be it for the week as they may have much of what they need for slaughter, leaving them bidding at lower prices. Cutouts were up $0.16, which could provide further support today. Saturday slaughter is estimated at 21,000 head.

	BULL SIDE		BEAR SIDE
1)	Even if cash cattle trade steady this week, it should provide support to the market as it maintains the recent strength of cash.	1)	The cattle complex seems to be running out of steam after the incredible gains over the past months. Higher prices may be affecting demand.
2)	August cattle futures hold a large discount to cash relative to current fundamentals. Tight cattle supplies should keep support under the market.	2)	If weekly export sales of beef show further weakness, pressure may again be put on futures.
3)	Hog futures broke through technical resistance Wednesday, which could trigger further short-covering.	3)	Hogs left chart gaps again under the market Wednesday. These gaps may be filled at some point, requiring the market to pull back.
4)	Pressure continues to be put on Congress to act against the implementing of Prop 12 on July 1. If it is determined to be unconstitutional or even delayed for a period, support will remain under the hog market.	4)	Strong cash may have run its course for the week as packers may have purchased sufficient supply. Hog futures may pull back into the weekend.