Wednesday Morning Livestock Market Update - Cattle Futures May See Further Pressure From Uncertainty

GENERAL COMMENTS:

The cattle market has been reactive to any information that has developed over the discovery of the H5P1 avian flu virus in dairy cattle. The uncertainty of whether it would impact beef cattle has been hanging over the market. USDA announced it would test ground beef in more highly concentrated dairy areas to see whether the H5N1 virus matter is present. This increased the anxiety of traders and triggered liquidation. There has been no announcement of any test results but the "what if" is all it took to increase the selling. Feedlots may want to move cattle more aggressively this week but may find packers will not be aggressive to purchase. Boxed beef prices did not provide any support with choice down $3.16 and select down $0.26.

Hogs closed mixed as traders tried to assess the impact of the avian flu virus on beef consumption. It is unclear if pork consumption could increase if evidence of avian flu is found in ground beef. It is too early to tell, leaving traders cautious. The packers were aggressive on Tuesday, purchasing a large amount of hogs at higher prices. The National Direct Afternoon Hog report showed cash up $2.40, moving the weighted average price to $92.03. The packers may not be as aggressive Wednesday but could remain somewhat aggressive looking for hogs. Pork cutouts were $0.24 lower which may keep a lid on price potential.

	BULL SIDE		BEAR SIDE
1)	If the testing of ground beef for avian flu is negative, the cattle market could rally sharply.	1)	As long as there is uncertainty over avian flu in cattle, futures may remain under pressure with limited upside potential.
2)	Live cattle futures gapped lower on the open and likely will fill the gap over time. The pressure on futures was reactionary and not based on solid facts.	2)	Cash cattle are expected to trade lower this week as packers will not be aggressive and feedlots may want to move cattle.
3)	Hog futures held support and with strong cash Tuesday; traders could be more aggressive buyers Wednesday.	3)	So far, hog futures have not been able to rebound after the liquidation last week. Traders remain cautious over pork demand.
4)	Packers continue to run aggressive chain speeds as strong demand needs to be satisfied. This may increase if pork demand benefits from the uncertainty in beef.	4)	The packers may not be as aggressive Wednesday as they purchased many hogs Tuesday. This may leave them in a better bargaining position.