Wednesday Morning Livestock Market Update - Cattle Futures May Have Higher Cash Factored In

GENERAL COMMENTS:

Boxed beef prices were mixed Tuesday with choice up $1.09 and select down $0.18. That was not enough to set a negative tone in the market as the recent strength indicates strong demand for beef. The packers may not slow the slaughter pace further as they need to supply beef to the market. Feedlots will hold out for higher prices this week as they know the packers did not purchase many for deferred delivery. Higher futures prices also provide confidence to feedlots that higher cash can be achieved. Cash trade is likely to be pushed to the end of the week Lower feed prices allow the feedlots to hold for higher prices and hold for the following week if necessary. Cattle numbers remain tight and will remain that way for some time.

December hogs pushed to a new high for the move Tuesday and closed above resistance and the highest close since May 15. The trend remains up and fund traders continue to buy into the market. It is uncertain whether futures will revisit the contract high of $79.50. Futures are only $2.40 away from reaching that level. The packers were not as aggressive as expected Tuesday and will need to step up and purchase more hogs as the week progresses. Their purchases so far this week have been limited. The National Direct Afternoon Hog report showed cash down $0.20. Pork cutout values were down $1.24. Pork demand has been good and will need to remain that way or the prices may see pressure, which could trigger the liquidation of futures.

	BULL SIDE		BEAR SIDE
1)	The feedlots are gaining confidence to hold for higher prices due to the strength of futures.	1)	Cattle futures are overbought and ripe for a price retracement. If cash cattle trade is steady this week, it could trigger profit-taking.
2)	Choice boxed beef prices have been higher so far this week, indicating consumer demand may be improving as the calendar moves toward the end of the year.	2)	The packers may try to reduce slaughter pace to limit the amount of cattle they need to purchase. The hope is to have feedlots let go of their cattle ready for the market rather than hold them.
3)	Hog futures remain in a strong uptrend as traders are not shy about supporting the market even when cash and cutouts show weakness.	3)	Hogs need to find more consistency in cash and cutouts to support futures and reach back to contract highs. Otherwise, futures could retrace as traders lighten positions.
4)	The packers need to purchase more hogs and may step up more aggressively Wednesday rather than wait until the end of the week.	4)	Hog futures are overbought and some liquidation may be seen ahead of the weekend if cash hog prices cannot move higher through the end of the week.