Wednesday Morning Livestock Market Update - Cash Cattle Optimism Erodes

GENERAL COMMENTS:

Live cattle futures fell below support Tuesday, triggering further selling and increasing losses. The fear of following a repeat of March may be coming to fruition and may have a greater influence on trading activity. A rebound in futures may be viewed as a selling opportunity. Any hope for cash cattle to trade steady this week has evaporated. Some limited cash trade took place in Nebraska at $3.00 lower than last week. This weakness may increase cash activity Wednesday as feedlots may want to take what they can earlier this week rather than hold out until later and sell for possibly lower prices. Boxed beef prices were lower, adding to the negativity of the complex. Choice cuts were down $0.47 with select down $0.97. Feeder cattle futures continue to make new contract lows.

Hog futures likely were the recipients of spillover pressure from the selling in the cattle complex Tuesday. Futures held up well despite the weakness. Higher cash and cutouts Tuesday should provide support Wednesday with futures possibly testing the upper end of the trading range. The National Daily Direct Afternoon Hog report showed an increase of $0.54 with a large volume of hogs purchased by the packers. They should remain aggressive Wednesday as they want to buy earlier rather than later. Pork cutouts gained $0.45 and may also add to support Wednesday.

	BULL SIDE		BEAR SIDE
1)	September feeder cattle made a new contract low but did not close at a new contract low. Traders may step back in to buy futures for a bounce.	1)	Live cattle breaking below technical support and feeder cattle making new contract lows do not bode well for the market. Futures price bounces may be met with selling.
2)	Cattle futures have more than factored in a decline in cash. Once traders see the level of cash trade, futures may bounce back.	2)	Beef demand has not increased as expected. The packers will maintain reduced chain speeds to improve margins and back up cattle in the country.
3)	The selling pressure in hogs that spilled over from cattle may dissipate with futures moving back to the upper end of the trading range.	3)	Hog futures may remain in a range for the near term with traders unwilling to buy futures aggressively unless they see more consistent demand.
4)	Higher cash and cutouts should provide support to the market. The packers will need more hogs to maintain the increasing slaughter pace.	4)	The market may continue to hold a steep discount until the market proves itself. That may be tough under the current fundamentals.