Wednesday Morning Livestock Market Update - Follow-Through Buying Expected

GENERAL COMMENTS:

Live cattle futures tested the top end of the trading range Tuesday. The strength of boxed beef may result in some follow-through buying which could push the market higher. Boxed beef showed impressive gains on Tuesday with choice up $5.44 and select up $6.64. We seldom see that kind of strength in boxed beef. This pushed choice back above $300 again. This changed the cash cattle outlook this week as stronger demand may require packers to be more aggressive with their cattle purchases. Feedlots will gain more confidence to hold. Of course, one or two days of good boxed beef prices do not mean demand has changed course, but it does indicate potential demand may not be as bad as feared.

Hog futures opened higher and closed higher but could not hold the initial strength. The trading action may have stemmed the selling pressure, but it may not garner strong buying interest from traders. Traders will decide whether they should trade stronger cash or weaker cutouts Wednesday. The National Daily Direct Afternoon Hog report showed a gain of $1.05, moving the weighted average to $90.83. Cutouts did not follow suit with a decrease of $0.93. There is good potential that packers need more hogs for the week and will pay higher prices to obtain them. The higher slaughter pace should dissipate the idea of weaker demand.

	BULL SIDE		BEAR SIDE
1)	The strength of boxed beef should provide further support to cattle futures Wednesday as maybe demand has been underestimated.	1)	Packers are not making much if any money and will not want to pay any more for cattle than they need to. Improving boxed beef prices may not make them more aggressive.
2)	Further short-covering may unfold as traders liquidate positions in case futures have bottomed for the time being.	2)	Higher cattle weights may continue to be a problem and could limit upside price potential.
3)	The downtrend may have run its course in hog futures with the oversold market correcting.	3)	Hog supplies continue to be sufficient with packers finding no difficulty in obtaining hogs to maintain the higher slaughter pace.
4)	The continued strong slaughter pace does not indicate pork demand will slow anytime soon.	4)	Greater pork demand will need to surface soon or hog futures will flounder with limited upside potential.