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

GENERAL COMMENTS:

The cattle complex tried to rally early Tuesday but succumbed to selling pressure as the potential for lower cash cattle this week may be a reality. Bids that surfaced Tuesday were lower than where cattle prices were traded last week. The weakness of futures might be more than just a technical price correction in an overbought market. August cattle closed below $170 for the first time since May 31. Boxed beef declined with choice down $3.23 and select down $2.83. Cattle supplies are tight, but high prices cure high prices with demand potentially slowing seasonally. Feeder cattle were under pressure Tuesday, even though corn prices did not show much gain but had a volatile day. Pressure is likely again Wednesday as corn prices were significantly higher overnight due to a 6% decline in the good-to-excellent crop condition last week.

Hog futures were strong from the start Tuesday as traders reacted to Monday's strong cash and cutouts. The July contract opened higher and never looked back, leaving yet another chart gap below the market. Chart gaps generally are filled at some point, but recently there have been a few livestock contracts that have not closed gaps before the contract ceased trading. July will probably be another one of those as it has three gaps below the market. Packers were looking for hogs again with the National Direct Afternoon Hog report showing a gain of $0.73. Cutouts showed weakness, declining $1.44. Funds have been short-covering, trimming their long positions, which has also provided support that may carry through Wednesday despite what cash and cutouts do.

	BULL SIDE		BEAR SIDE
1)	Cattle futures have had a substantial price correction which could stabilize the market temporarily.	1)	Substantially higher corn futures overnight may put more pressure on cattle futures.
2)	Feedlots passed on lower bids Tuesday and may be holding for nothing less than steady cash.	2)	A seasonal slowdown in beef demand may result in further pressure on the market.
3)	Packers may be seeing tighter hog supplies along with lower weights. This makes them more aggressive in the cash market.	3)	Hogs may see a little pressure due to weakness in cutouts Tuesday.
4)	Current demand is overriding the uncertainty of the implications of Prop 12 come July 1. This demand may continue.	4)	Hog futures are nearing some technical resistance, which may be an area where selling may intensify.