Wednesday Morning Livestock Market Update - Cattle Contracts May See Further Pressure

GENERAL COMMENTS:

Live cattle futures tried to push through resistance but selling pressure pushed futures lower Tuesday. This could be the beginning of a price correction as further weakness Wednesday could trigger further liquidation. Cash cattle did not trade Tuesday and are not expected to trade Wednesday. The uncertainty of demand and the recent weakness of boxed beef have traders anticipating no better than steady cash this week. Boxed beef was lower Tuesday with choice down $2.89 and select down $2.22. Feedlots may be more interested in selling even at lower prices if further selling occurs in cattle futures Wednesday or Thursday. Feeder cattle took the weakness more personally with contracts posting greater losses despite good demand for cattle and calves in the country.

Hog futures opened higher Tuesday, quickly pushing to new contract highs. The December through May contracts left a chart gap as traders jumped into the market due to the exceptional gains in cash and cutouts Monday. The packers were aggressive on Tuesday with the National Direct Afternoon Hog report up $1.09 on good volume. Pork cutouts did not fare as well with a decline of $0.88. It is possible packers step back Wednesday and Thursday to see how many hogs they can purchase without having to be aggressive. Then step back in again Friday if more are needed to fill slaughter needs.

	BULL SIDE		BEAR SIDE
1)	Steady cash cattle trade this week would support the market, limiting the downside price weakness of futures.	1)	The selling on Tuesday may have been the beginning of a larger price correction due to an overbought market. If the fund traders liquidate, there could be another two or three days of selling.
2)	Demand for feeder cattle remains strong with higher prices at auctions due to lower numbers and strong demand.	2)	The weakness of boxed beef and lower futures could increase the desire of feedlots to move cattle at steady or lower cash prices.
3)	Hog futures gapped higher as traders anticipated further cash strength and continued strong demand.	3)	The December through May lean hog contracts left chart gaps under the market. These chart gaps will be filled.
4)	Packers are aggressively looking for hogs and are willing to pay more for them to maintain strong slaughter pace. Packer margins are good.	4)	The bull spreading of the past few days may be unwound, putting pressure on the nearby contract months.