Tuesday Morning Livestock Market Update - Strong Pork Demand Pushes Prices Higher

GENERAL COMMENTS:

Cattle futures closed higher Monday but are struggling to gain solid footing. It was positive to see higher boxed beef with choice up $0.28 and select up $2.65. This pattern was seen last week, only to see boxed beef prices resume weakness as time progressed. A similar pattern could be seen this week. Futures need to find support soon or the market could see another liquidation phase. Cattle supplies have not suddenly increased but demand has slowed for the time being. There is no slowing down in demand for feeder cattle as available supplies are tighter and the outlook for cattle prices remains positive.

Hog futures posted another strong day Monday with the front-month December leading the way. Trader optimism is strong, and they have been buying and holding for the long haul. An overbought market showed a price correction in nearby contracts while later contracts continued to make new highs. The packers stepped up aggressively Monday with the National Direct Afternoon Hog report showing a gain of $1.85. Cutout values were down $0.92 -- not surprising after the large gain seen Friday. The June and July contracts are knocking on the door of $100, which has not been seen for a while.

	BULL SIDE		BEAR SIDE
1)	Feeder cattle prices remain strong as numbers are tight which should continue to support live cattle. The cattle herd is not yet in a rebuilding stage.	1)	Boxed beef prices have been unable to find solid support as high beef prices have impacted demand.
2)	Nearby live and feeder cattle contracts have chart gaps above the market that may be filled sooner rather than later.	2)	Traders are cautious as the beef market could follow a similar pattern as last year by making a substantial price correction into the end of the year.
3)	Hog futures continue to make new highs as traders are not shy about increasing their long positions. Traders are following the trend.	3)	Managed money traders are holding a record-long position and any change in fundamentals or psychology could trigger liquidation of hog futures.
4)	Hog numbers are not out there as had been anticipated. This has kept the packers more aggressive as demand has improved and margins are good. This will keep slaughter active.	4)	The higher hog prices go and the larger the managed money position, the more nervous technical traders become and the larger the price decline if the market changes.