Wednesday Morning Livestock Market Update - Further Strength in Cattle Futures

GENERAL COMMENTS:

Cattle futures opened higher Tuesday and closed higher with August live cattle above $180, the highest close since March 22. The February contract closed above $190. Demand continues to support the market with boxed beef showing further strength with a gain of $0.32 for choice and $1.52 for select. This will give feedlots confidence to hold out for more this week. The Cattle on Feed report will be released Friday after the close with traders likely beginning to turn their attention to it Wednesday. Traders are facing two aspects of the market that will impact trading activity -- the Cattle on Feed report and the three-day weekend. The Friday of Memorial Day weekend generally has significantly lighter trade as the attention is focused on the kick-off weekend of the summer. Then there is the report that will not be traded until next week on Tuesday. Traders may reduce their risk ahead of the weekend. The estimates for the report are for on-feed number May 1 of 99.1% of a year ago. Placements in April at 93.3% and marketings at 109.5%.

Hog futures were unable to find strong buying interest Tuesday. Cutouts continued to struggle with a loss of $1.08. The positive aspect was the strength of cash with the National Direct Afternoon Hog report showing an increase of $1.77. The slaughter pace continues to remain strong but hog numbers are not tightening. Some of the influence on this may be the imports of hogs from Canada being processed in the U.S. Futures remain entrenched in a downtrend with lower lows Tuesday. Cash is expected higher Wednesday as the packers will remain aggressive ahead of the weekend.

	BULL SIDE		BEAR SIDE
1)	Demand is strong and reflected in higher boxed beef prices. The packers will need to remain aggressive to meet that demand.	1)	The strong demand for the Memorial Day weekend may run its course resulting in the weakness of boxed beef prices.
2)	Cattle futures closed near the highs which should keep buying interest strong as traders trade with the trend.	2)	Cattle futures may retrace before the holiday weekend and the Cattle on Feed report.
3)	Hog futures are oversold and, with the extended holiday weekend, they may cover some short positions ahead of the weekend.	3)	Pork demand ahead of the weekend is not as great as expected, keeping a bearish tone in the market.
4)	The packers may be aggressive Wednesday as they may want to purchase hogs sooner rather than later before the holiday weekend.	4)	Support remains elusive as funds continue to liquidate and lower lows indicate further weakness. Futures have not found solid support.