Wednesday Morning Livestock Market Update - Strong Cash, Cutouts May Support Hog Futures

GENERAL COMMENTS:

Tuesday, cattle were able to regain some of the losses from Monday but had a difficult time doing it. Futures came back from lower prices during the last half hour of trade to post a nice close. Further strength may be difficult unless boxed beef prices improve. Boxed beef prices were lower Tuesday with choice down $1.58 and select down $2.80. Cash cattle have not yet traded, and it is anticipated to be lower this week. Cattle supplies remain tight but the current situation in the market leaves traders uncertain of the level of near-term demand from consumers. The state of Nebraska has issued a restriction on the importation of dairy cattle for a period of 30 days due to the HPAI virus found in dairy cattle. A special permit will be required during this time. This will be in place for 30 days at which time the restriction will be re-evaluated. This may begin a ripple effect in other states.

Hog futures chopped around Tuesday, closing mixed. Futures contracts did establish new highs before slipping back. There is strong support under the market as both cash and cutouts were higher. The National Direct Afternoon Hog report showed cash up $4.55 with the weighted average at $84.71. Cutouts showed strength with product values up $0.52. The strong slaughter pace continues. Overall fundamentals are positive, which should continue to provide support to the market.

	BULL SIDE		BEAR SIDE
1)	The sharp selloff ran its course Monday with traders feeling the market was overdone to the downside. Some traders were willing to step back in to buy.	1)	Much damage has been done technically to cattle futures. This may keep traders cautious about being aggressive buyers in the near term.
2)	Even if cash cattle trade lower this week, futures carry a significant discount to cash, which should provide support to the market.	2)	There is anticipation for lower cash cattle trade this week with lower boxed beef and cattle futures leaving packers less aggressive.
3)	The strength of cash hogs Tuesday indicates strong demand with the packers needing to procure hogs aggressively.	3)	Hog futures could not hold the highs even though cash and cutouts looked positive earlier in the day.
4)	The strength of cutouts may already indicate consumers are turning toward pork due to the uncertainty surrounding the discovery of HPAI in dairy cattle and a human.	4)	Packers may not need to be as aggressive with hog purchases Wednesday or the rest of the week.