Wednesday Morning Livestock Market Update - Hogs Face Significant Headwinds

GENERAL COMMENTS:

Traders are uncertain which direction cattle prices will move this week. The general thinking is cash will be steady, but packers may hold the line following their success over the past few weeks of lower cash. The upcoming holiday and the recent weakness of boxed beef may give them the upper hand. Boxed beef was lower with choice down $2.68 and select down $2.41. Hot weather returns in the Midwest and Plains this weekend into next week which will impact cattle performance. It could also have an impact on corn and soybeans filling out, which could increase feed prices. Cash cattle are not expected to trade Wednesday.

Hog futures diverged with closer months seeing pressure while later months were moderately higher. Closer months reacted to lower cash and cutouts as Tuesday progressed. Cutouts have been under substantial pressure since Friday with a minor gain on Monday. Cutouts Tuesday fell $3.20 with another large decline in bellies. The National Direct Afternoon Hog report showed cash falling $5.51 to a weighted average of $81.41 and near where the October futures contract is currently trading. Cash and futures have come together quickly over the past few weeks with the weakness of cash narrowing the large price gap the market had contained. Higher cash may be difficult to see this week and next week will see reduced slaughter due to a holiday-shortened week.

	BULL SIDE		BEAR SIDE
1)	Feeder cattle are poised to make a run at new contract highs as demand at auctions remains strong with higher prices.	1)	Traders are reluctant to anticipate higher cash cattle this week and may let futures drift lower until cash trading takes place.
2)	Showlists are current, which may result in cash trading no less than steady this week. This would provide support to live cattle futures.	2)	Packers may not need to be aggressive this week due to the holiday-shortened week coming up. Feedlots may decide not to hold cattle another week for potentially no benefit.
3)	The sharp decline of bellies over the past few days should improve demand and provide support to cutouts.	3)	The sharp decline of cash and cutouts Tuesday may keep pressure on the hog market Wednesday.
4)	Hog futures have developed a sideways trading pattern recently which may be building technical support. Fundamental support needs to surface to solidify that support.	4)	Packers will be less aggressive this week due to the holiday-shortened week. This may keep pressure on futures as hog supplies remain readily available.