Tuesday Morning Livestock Market Update - Mixed Trading Activity Expected

GENERAL COMMENTS:

Cattle futures settled back Monday after Friday's large gains. There is some optimism that cash cattle may trade steady this week now that boxed beef has shown some strength. However, traders will exercise caution until cash activity takes place. The packers are holding the line on slaughter, attempting to improve their margins. They have been able to purchase cattle for deferred delivery, which may allow them the ability to hold the line on spending. Boxed beef was higher Monday with choice up $3.12 and select up $1.58. This is what packers want to see and the reason they have been reducing slaughter. It may not mean cash cattle will trade higher as a result. The WASDE report showed plentiful grain supplies and feed prices substantially lower than a year ago.

Hog futures showed some spread trading with August and October higher and later contracts lower. The August contract remains close to the index as Wednesday is the final day for the contract. October will take over as the lead month, holding a substantial discount to the index. However, a lot can change over the next two months, so it is difficult to determine whether October is underpriced. The National Direct Afternoon Hog report showed cash down $1.05. Packers may step up more aggressively Tuesday to purchase hogs to fill the strong slaughter pace. Pork cutouts gained $1.61, which may provide support to the market Tuesday. The WASDE report showed mixed numbers, leaving the market neutral.

	BULL SIDE		BEAR SIDE
1)	Boxed beef prices have recently trended higher, potentially indicating demand may be picking up.	1)	Cattle futures may have a difficult time regaining the losses of last week as packers may hold the line on spending this week.
2)	Less expensive feed prices may result in feedlots holding cattle for higher prices. They have less urgency to move cattle.	2)	Fund traders have been reducing their long positions as the cattle market may have run its bullish course for now. Higher prices may have cured high prices.
3)	Hog futures may continue to recover from the weakness last week as the fundamentals have not changed. Futures may move back into the range.	3)	USDA did not provide much optimism for the hog market for the rest of this year and next. This may keep any extra premium out of the market.
4)	The December through April hog contracts have chart gaps above the current market that may be filled shortly.	4)	The cash hog market will need to improve or futures will remain under pressure with limited upside potential.