Wednesday Morning Livestock Market Update - Trader Psychology Drives Market

GENERAL COMMENTS:

Cattle futures pancaked lower as long liquidation gripped the market and sell stops were hit. As futures declined, increased technical selling took place. Some of the pressure stemmed from the bearish numbers on the Cattle on Feed report, but some was fear of what the discovery of bird flu in dairy cattle could mean for the industry. The concern over bird flu was just a psychological reaction as it really could be construed as bullish to the market. If it becomes more of a widespread issue, it could be very bullish as affected cattle would lose weight, which would delay marketing and tighten beef supply further. It could also impact nursing calves. However, uncertainty plays a large role in the commodity markets. Cattle futures did bounce back from the lows, which could bring buyers back in if cash would trade higher again this week. Boxed beef prices were mixed with choice up $0.20 and select down $1.70. Cash cattle have yet to trade this week.

Hog futures were able to shun much of the spillover pressure from the cattle complex. However, traders could not find much positive news either, resulting in a mixed close. The National Daily Direct Afternoon Hog report showed cash down $0.54 with a weighted average of $80.63. Cutouts were also lower with a decline of $0.41. Combining the weakness of cash and cutouts with the upcoming Quarterly Hogs & Pigs report on Thursday, trading activity might be mostly choppy. Thursday will also be the last day of trading before an extended weekend. Packers may have purchased most of their supply for the week, which may leave them unaggressive Wednesday.

	BULL SIDE		BEAR SIDE
1)	The huge decline in cattle futures Tuesday may have been more tied to emotional trading rather than fundamental trading.	1)	Technical damage was done to cattle futures. This may be difficult to overcome anytime soon as traders may be cautious about buying back into the market. Follow-through selling may take place.
2)	There is some anticipation cash cattle may trade higher this week, which would support futures immensely after the huge selloff Tuesday.	2)	Cash cattle should begin to trade Wednesday, and lower prices would solidify and support lower futures.
3)	Hog futures were able to hold much of the strong gains on Monday and held up well Tuesday against spillover pressure from cattle.	3)	Hog traders will position themselves ahead of the Hogs & Pigs report to be released Thursday. This may keep futures choppy.
4)	Hog futures may remain sideways through the end of the week, possibly building support.	4)	Packers may have purchased most of the hogs they need for the week, which may keep them less aggressive in the cash market.