Wednesday Morning Livestock Market Update - Futures Search for Support

GENERAL COMMENTS:

It certainly looks like cattle reached a top with selling pushing futures lower. Traders are uncertain over demand as interest rates are likely to increase more this year, which may have an impact on consumer demand. A bearish development in the cash market also triggered liquidation. It has been unusual to see cash trade this early in the week, but some light cattle trade developed $1.00 lower Tuesday. The recent pressure on futures may result in feedlots letting go of cattle as they see holding out may not be of any benefit. Boxed beef showed a substantial loss with choice down $3.01 and select down $1.39. Could it be the top is in or is this just a large price correction? The rest of this week will likely indicate what it is. As a result of the weakness in live cattle, feeder cattle are trading lower at auctions with buyers reacting to what is happening with live cattle.

Hogs were lower in nearby months on Monday and showed general pressure Tuesday. Cash and cutouts remain unable to find support. The National Direct Afternoon hog report showed cash down $3.18. Cutouts declined $1.43, keeping pressure on the market. December hog futures distanced themselves further from the chart gap left Monday, making it more difficult to close that gap anytime soon. Slaughter pace remains strong with packers able to purchase what they need without difficulty.

	BULL SIDE		BEAR SIDE
1)	Lower boxed beef prices may stimulate demand as consumers prefer beef. Seasonally, there should be an increase in demand.	1)	The cattle market is in a huge correction phase which may continue for a bit. The fear is that futures will decline faster than they went up as is generally the case.
2)	Feeder cattle have corrected from overbought, technically. Fund liquidation may be near running its course. Fundamentally, the market is bullish.	2)	Packers are using the weakness of futures to their advantage and are bidding less for cattle. Slaughter is also reduced to improve packer margins.
3)	Pork prices should be low enough to stimulate demand. It also might eventually reduce the number of hogs available as farmers throw in the towel rather than continue to lose money raising hogs.	3)	Hog futures broke price support and fell lower, potentially to retest the contract lows and back to the levels of May.
4)	Fund traders remain net-long the market and may defend those positions using this dip to add to those long positions.	4)	Even with lower cash, packers have no difficulty purchasing hogs as they need to be moved. Farmers do not want to hold them any longer than necessary.