Wednesday Morning Livestock Market Update - Hogs May See Further Short-Covering

GENERAL COMMENTS:

Cattle futures showed gains Tuesday, but traders seemed to lack conviction with contracts held to double-digit gains. The potential for lower cash cattle prices again this week will keep traders cautious. They want the market to go higher due to tight cattle numbers, but the bottom line is demand. Boxed beef has shown weakness and Tuesday was no exception. Choice cuts fell $2.23 and select was down $3.23. Along with the concern over demand, the Cattle on Feed report will be released Friday after the close. The estimates are for cattle on feed on July 1 to be 101.2% compared to a year ago. Placements are estimated at 97.0% with cattle marketed in June at 91.8%. Cash cattle may not trade until late in the week as is usually the case when it is a report week. Feeder cattle are seeing some demand weakness at auctions with lower prices being paid for animals.

Hogs found some buying interest, which may follow through Wednesday as funds could cover more short positions. The August contract closed at the highest level in a month, possibly signifying the market has established a bottom with short-covering and new buying interest to correct the oversold condition it has been in for quite some time. There was strong interest from packers Tuesday with the National Direct Afternoon Hog report showing cash up $1.93. This was supported by cutouts gaining $2.58. It is too early to tell whether prices will trend higher, but this may be a good start. The packers may be somewhat aggressive Wednesday as they want to gain ownership of the hogs they need to maintain the strong slaughter pace.

	BULL SIDE		BEAR SIDE
1)	Live cattle futures are at a discount to cash. Steady cash cattle trade this week may result in higher futures as they move closer in line.	1)	The weakness of boxed beef continues with select cuts potentially falling below $300 this week. Consumer demand has slowed.
2)	Due to the large placements seen on the May Cattle on Feed report, June placements may be much smaller and possibly less than the trade estimates.	2)	Traders anticipate cash cattle to trade steady at best this week, which may limit upside price potential.
3)	August hogs closing above chart resistance and the highest price in a month may indicate a change in trend.	3)	The strength of cutouts Tuesday may be short-lived as hams were the only cut showing strong gains.
4)	Pork cutouts may be finding support and a higher trend may develop as lower prices may stimulate demand.	4)	Once the packers have most of their needs covered for the week, they may pay lower prices for hogs to fill the slaughter for the rest of the week.