Wednesday Morning Livestock Market Update - Tariffs are on With Traders Uncertain Over the Impact

GENERAL COMMENTS:

Cattle futures rebounded substantially from the lows as traders digested the beginning of the tariffs put on Canada, Mexico, and China. The market seemed to take it in stride, and now that it came to fruition, traders determined that the market had it already factored in, and prices needed to correct. It is too early to tell whether this will be a trend reversal or if it was just a day of short-covering by the funds in case there is another expected change. Cash cattle did not trade on Tuesday and likely will not trade today. The general idea is that cash will be lower again this week. Boxed beef prices increased but likely not enough to provide strong support to the market. Choice cuts gained $0.92 with select cuts up $1.61. The packers will need to see a consistent increase in prices to indicate stronger demand. Feeder cattle closed mixed, remaining uncertain over the impact of tariffs.

Hog futures penetrated more levels of technical support on Tuesday, triggering further liquidation. One would think the market is overdone to the downside but traders have not provided any indication of support. The impact of tariffs on demand remains uncertain, but continues to cast a bearish cloud over the market. Cash was higher with the National Daily Direct Afternoon report up $0.80 from Monday. This was offset by cutouts declining $2.20. China indicated pork is on the list of retaliatory tariffs. Mexico is likely to do the same. Slowing of export demand will keep the packers on the defensive as they do not want to process more pork than demand will absorb. The packers should remain aggressive today as they purchase hogs to maintain the slaughter pace.

	BULL SIDE		BEAR SIDE
1)	Cattle may correct further as the market may have been overdone to the downside.	1)	The rebound from the lows today did not change the trend higher. Traders were short covering and not establishing new positions.
2)	Even if cash cattle trade lower this week, futures may need to increase to get in line with cash.	2)	Cash cattle are projected to trade lower this week. The packers continue to maintain a slower slaughter pace.
3)	Hog futures are oversold and may see renewed buying as the market needs to adjust to the known fundamentals, not the perception of what tariffs will do.	3)	Hog futures have not held support as liquidation over demand uncertainty may continue.
4)		4)	China indicated they were retaliating with tariffs of their own and pork is on the list. China has been a large importer of U.S. pork.