Wednesday Morning Livestock Market Update - Markets Continue to Adjust to Fundamentals

GENERAL COMMENTS:

Traders became more confident cash cattle might trade higher this week, causing the market to reduce the discount they were holding to cash. Steady cash trade this week would be considered friendly to the market. Packers have some cattle purchased ahead, which may leave them less willing to match the higher offers of feedlots. Some limited cash trade was seen in Kansas at $1.00 lower than last week. This does raise some concern as continued lower boxed beef prices may be the deciding factor. Tuesday's boxed beef prices were lower with choice down $0.23 and select down $1.67. This may cause the packers to hold the line on what they are willing to pay for cattle.

Hogs continued to uncover buying interest, finding continued support from market fundamentals. The market has far surpassed the three-day fund short-covering period that turned the market from its low. Pent-up optimism was evident when the market opened Tuesday and the August and October contracts gapped higher. Strength may continue Wednesday but with less exuberance. The National Direct Afternoon Hog report showed cash up by $0.31 with packers expected to be less aggressive Wednesday. Cutout values declined $1.02 but the impact on the market is expected to be minimal.

	BULL SIDE		BEAR SIDE
1)	The uptrend in live cattle futures remains intact with traders optimistic cash prices will remain strong with no worse than steady cash this week.	1)	The choice boxed beef price fell $8.23 last week with further weakness expected through the end of this week. This may put additional pressure on the cash cattle market.
2)	The Cattle on Feed report showed that heifer retention is not increasing, much delaying the rebuilding of the herd.	2)	Cattle weights were higher last week with the average dressed steer weights up five pounds from the previous week. Feedlots may be willing to move cattle this week and unwilling to hold and continue to feed for no financial benefit.
3)	The hog market fundamentals have turned bullish, triggering short-coving and renewed buying interest and quickly eliminating the oversold condition of futures.	3)	August and October hog futures gapped higher on the open. Those gaps may be filled at some point.
4)	Pork cutout prices have been increasing, indicating demand is improving. Packers will need to remain aggressive with hog purchases to keep plants full and demand satisfied.	4)	Hog futures have corrected from their oversold condition, which may temper some of the strength as the market finds a fundamental balance.