Wednesday Morning Livestock Market Update - Further Pressure on Hog Futures Expected

GENERAL COMMENTS:

Cattle tried to make a run higher Tuesday, but failed as buying did not follow through. Traders want the market to move higher due to tighter supplies and the potential to remain that way for the entire year. However, the buying Tuesday was temporary and the day ended with minor losses. Cash cattle did not trade, as it seldom does during the first-half of the week. The positive aspect is boxed beef continued higher for the second day. Choice gained $1.28 with select up $0.77. Traders seem concerned the pattern of last week may again follow this week. Cattle weights seasonally increase in the summer and with already significantly higher weights than last year, price potential may be limited.

July hog futures gapped lower on the open and never looked back. Futures contracts broke support, triggering aggressive liquidation. The market pancaked lower with prices moving to and closing at the lowest level since January. Nearly the entire gains of the year have now been erased. The oversold market begs for a short-covering rally, but technical traders are having none of it. The National Direct Afternoon Hog report showed cash down $0.57 with a weighted average of $88.78. Cutouts provided no support, declining $0.67. Follow-through selling may continue as funds liquidate long positions and margin calls force traders out of the market.

	BULL SIDE		BEAR SIDE
1)	Boxed beef prices were higher again Tuesday, indicating beef demand remains strong.	1)	The available cattle are substantially heavier, requiring fewer animals for the volume of beef needed. Cattle are backed up in the market to some extent.
2)	Packers may need to step up and bid higher to obtain the cattle they need to supply the strong demand, even though they have some purchased ahead.	2)	Beef demand may slow as summer progresses. Hotter weather generally reduces overall consumption.
3)	Hog futures are extremely oversold and will not go down forever. The market is being stretched and ripe for a retracement.	3)	Hog futures breaking support and closing near the lows may see follow-through selling Wednesday.
4)	The July hog contract left a gap on the open Tuesday that needs to be filled. That may happen sooner rather than later. The weakness was the result of stops being triggered rather than new selling.	4)	Slower pork demand remains a concern and the variable pork cutout values support that concern, leaving traders bearish.