Wednesday Morning Livestock Market Update - Cash Cattle Trade Unlikely

GENERAL COMMENTS:

Traders certainly remain optimistic about cash this week with no cash trading taking place yet and no solid bids or offers seen. Feedlots might be in a position where they can hold cattle for a while as weights are lighter as cattle have been pulled forward. Cash prices are very good, but with tightening numbers, they could become better. The other issue is whether demand will continue to remain strong as prices continue to increase. Boxed beef has been struggling recently with choice down $2.10 and select up $0.87 Tuesday. Bids and offers should be seen Wednesday, but cash may not trade. It will be an interesting rest of the week as traders will also be looking ahead to the Cattle on Feed and Cattle Inventory reports Friday.

Packers were aggressive in the cash market with the National Direct Afternoon Hog report up $2.25. Traders were left in the dark in the morning as cash was not released again due to packer confidentiality, leaving traders wondering. That might have been one reason for spread trading of August against October and December. The discount of August to cash should provide further support to the August contract. Cutouts were slightly lower with a decline of $0.03, which provides stability but not strong support for Wednesday. However, it is likely packers may need to be aggressive today as they still need hogs and may want to purchase them sooner rather than later.

	BULL SIDE		BEAR SIDE
1)	New contract high closes continue to show the strength of the market as supplies of market-ready cattle are tight and expected to remain that way.	1)	Strong overnight gains in corn may put further pressure on feeder cattle as traders will trade the correlation.
2)	Beef demand continues to remain strong with lower boxed beef prices keeping consumers purchasing at the retail level. This will keep the beef moving.	2)	Higher cash may already be factored in and with the upcoming Cattle on Feed report Friday, upside potential might be limited for the time being.
3)	Hog prices continue to increase as packers have not been shy about purchasing to maintain slaughter and meet demand.	3)	Deferred hog contracts may continue to struggle as demand uncertainty remains.
4)	The discount of August hog futures to cash should support the contract and result in further buying interest as it narrows the gap.	4)	Later hog contracts continue to slowly erode, leaving the market technically vulnerable for further liquidation.