Wednesday Morning Livestock Market Update - Cattle Futures Could Develop Sideways Pattern

GENERAL COMMENTS:

It was interesting to see how closely aligned the corn market and cattle were Tuesday. Cattle struggled while corn prices were higher, but as soon as price weakened somewhat, cattle futures showed strength. Corn did close higher but well off the highs. Live cattle had nothing to go on as there was no cash trade yesterday. The anticipation of higher cash has been trimmed a bit now that the numbers of cattle purchased last week were significant. Packers may not need to be aggressive this week. Boxed beef was mixed after the significant strength seen daily over the past week. Choice was up $0.56 with select down $0.76. Feeder cattle spent a large portion of the day in negative territory with more aggressive buying lifting futures as corn prices trimmed their gains. Further initial strength may surface Wednesday with lower overnight corn futures.

Wednesday is the last day to trade June hogs with July taking over as the front month Thursday and carrying more than a $3.00 premium to June. June and July closed lower while later contracts were supported. Packers were not quite as aggressive Wednesday as the National Daily Direct Afternoon Hog report showed a gain of $0.85. Support Wednesday could stem from higher cash and cutouts posting a gain of $1.32. Technically, July and August hogs are near resistance which may be difficult to break through as funds remain short the market and the uncertainty of demand when Prop 12 is in effect.

	BULL SIDE		BEAR SIDE
1)	More aggressive buying surfaced in cattle futures as Tuesday progressed in reaction to corn futures slipping from the highs. Lower overnight corn could provide further buying interest.	1)	Mixed boxed beef prices Tuesday may indicate prices have moved to a level at which demand may slow. Prices cannot move higher indefinitely.
2)	Cash should trade no worse than steady, which should provide support to cattle futures as cattle supplies remain tight.	2)	Packers purchased a large amount of cattle last week, which may keep them less aggressive in the cash market this week. Cash might even trade lower.
3)	Both cash and pork cutouts were higher Tuesday, which should translate over into higher futures Wednesday.	3)	July hogs carry over a $3.00 premium to June which may be difficult to maintain over the next month.
4)	Packers may remain aggressive Wednesday as they need to procure the hogs they need for the week and want to do it sooner rather than later.	4)	Funds remain net short and chart gaps remain below the market, which may be a combination that could increase selling pressure.