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

GENERAL COMMENTS:

Cattle opened lower Tuesday and never looked back. It seemed as if traders collectively decided it was time to liquidate long positions due to the market being overbought. Feeder cattle led the weakness with $3.00 losses through the next year. Cattle futures did not have pressure from the cash market as that has yet to trade. It did not have pressure from boxed beef as prices closed higher. Choice cuts gained $3.51 and select gained $2.99. The selling seemed to stem from the overbought market triggering a technical correction. This may be short-lived if cash trades steady or higher this week. The current consensus seems to be for steady cash as feedlots may need to move cattle they held back the past few weeks. Steady cash would still be considered a victory and should support futures.

Hog futures tried to gain some traction early Tuesday, but could not hold onto those gains. It was more the result of follow-through selling rather than what the cash market did. The National Direct Afternoon Hog report showed cash up $2.33 with a moderate trade volume. This may indicate further strength Wednesday as packers need to purchase more hogs for the week. The strong slaughter pace continues as demand is good. Pork cutouts showed weakness with values down $0.57. The packers have good margins and see no need to cut slaughter to increase cutout prices. However, there is concern over continued pork demand through the end of the year.

	BULL SIDE		BEAR SIDE
1)	The weakness in the cattle complex was not due to any negative change in fundamentals. It was technical selling in an overbought market.	1)	Selling pressure may continue for another day in cattle futures as they correct from an overbought status.
2)	Cash cattle prices should be steady to higher this week as boxed beef prices indicate good demand.	2)	Traders may not have the confidence to support cattle futures due to the large price increase over the past month. The market will need to prove itself to continue to uptrend.
3)	Hog slaughter remains strong as demand is strong. Higher weights have had little impact on the amount of hogs needed for processing.	3)	Pork cutouts are unable to find solid support. This raises concern over ongoing demand through the end of the year.
4)	Hog futures have had 2 days of a price correction. The technical liquidation may be finished and stronger cash may provide support.	4)	Hog futures could have one more day of a price correction before traders feel confident the technical correction has been finished.