Wednesday Morning Livestock Market Update - Mixed Trade Ahead of WASDE Report

GENERAL COMMENTS:

Cattle continued to build strength throughout Tuesday as the discount to cash was reduced. A lot can happen prior to the end of August, but optimism remains for strong cash. No cash cattle were traded Tuesday, and limited trade is expected Wednesday. Some offers were floated Tuesday in the South higher than last week as usual. Futures trading may be subdued ahead of the WASDE report this morning as traders wait for the impact it might have on grain prices. USDA will release estimates for beef production and average prices for this year and next as well which may have some influence. Boxed beef continued to struggle under pressure with choice down $1.67 and select down. $2.09. Lower boxed beef has had little impact on live cattle futures as new contract highs were again made Tuesday. Strong demand for feeder cattle continues at auctions.

July hogs matched the strong close of a week ago and are poised to move higher as the contract nears expiration and the index continues to increase. The large spreads between nearby and deferred months continues as traders are hesitant over demand into the end of the year. Strong cash and cutouts indicate current strong demand. The National Direct Afternoon Hog report showed cash up $2.50 Tuesday with a weighted average of $100.39. Packers are expected to pay more for hogs Wednesday as they may want to finish up much of the business for the week. Cutouts jumped $4.04 Tuesday, which should support futures Wednesday.

	BULL SIDE		BEAR SIDE
1)	New contract highs across the board in live cattle should spur more buying interest from traders as tighter cattle numbers will remain for a while.	1)	Continued higher cattle prices will eventually price itself out of the market as high prices cure high prices. Tight cattle numbers may not make any difference if the price is too high.
2)	The earlier projection for live cattle at $200 is near to becoming a reality with April futures reaching and exceeding $190 for a brief period Tuesday.	2)	Traders may have anticipated cash already factored in this week, limiting further upside gains.
3)	Strong cash and cutouts should continue to underpin the hog market in the near term.	3)	Nearby hog futures are in overbought territory, which could result in some liquidation into the end of the week.
4)	Hog supplies are tightening with packers becoming more aggressive earlier in the week to procure supply rather than waiting as competition increases.	4)	The anticipation for reduced pork demand later in the year may keep differed contracts showing limited upside price potential.