Wednesday Morning Livestock Market Update - Higher Cattle Futures Leave Feedlots Hopeful

GENERAL COMMENTS:

The buying interest in cattle futures may not come from expectations for cash to trade higher but is supported by technical trading. The gain in futures over the past two days may provide some confidence to feedlots to hold out until later in the week, hoping that the higher board prices may turn the packers more aggressive with their purchases. However, they may not need to be aggressive as they have a significant amount of cattle purchased for deferred delivery. Technical traders see some indicators that have triggered some buying interest for the short term which may run its course if not supported fundamentally. Boxed beef prices were mixed on Tuesday with choice down $3.98 and select up $0.06. Thursday is the last trading day for August feeder cattle with Friday the last trading day for August live cattle.

Hog futures enjoyed continued strength with the October contract reducing the discount it held to cash. The October contract has retraced about 65% of the loss sustained from the high in early April to the low in July moving it back to the highest level since June 3rd. Technical traders might have a goal of around $85.00 in mind which would be the projection of the head and shoulders bottom. The market is struggling fundamentally as the National Direct Afternoon Hog report showed a decline of $0.62 on good volume. Pork cutouts were supportive, regaining $1.07 of the large losses of Monday. The packers may be a bit more aggressive today as they want to purchase most of what they need for the week.

	BULL SIDE		BEAR SIDE
1)	October live cattle futures hold a nearly $6.00 discount to the August contract which goes off the board on Friday. The contract may narrow that discount if cash stabilizes.	1)	Packers have purchased a significant amount of cattle for deferred delivery, which may limit their need to be aggressive this week. Next week is a holiday week which will disrupt the slaughter schedule.
2)	Higher cattle futures could provide confidence to feedlots to hold for at least steady cash this week.	2)	Short-covering generally lasts three days and this is day three. The negative implications of the Cattle on Feed report may limit further gains.
3)	Hog futures have shown impressive strength over the past few weeks as fund traders have turned net buyers in the market.	3)	Hog futures are overbought and may correct after the strong of the past few weeks.
4)	The hog slaughter pace continues to run stronger than last year as demand has been holding. Higher hog weights have not had much impact.	4)	The packers do not seem to be as aggressive this week as they generally are. Higher cash may be difficult to ahead of the holiday weekend.