Wednesday Morning Livestock Market Update - Cattle Futures May Trade Sideways

GENERAL COMMENTS:

Cattle futures found buying interest on the break Tuesday. This support did not stem from strong boxed beef, but from the anticipation that cash may trade no worse than steady this week. Feedlots were able to hold for higher prices last week and have their sights set on higher prices this week. They may be willing to hold cattle longer if packers do not pay higher prices. The problem is packers had purchased some cattle ahead, slaughter continued at a reduced pace, and boxed beef prices fell Tuesday. Choice fell $3.68 with select down $1.67. Traders bought the break in anticipation of continued tight cattle supplies as there is little indication of rebuilding the cattle herd.

Hog futures could not hold their highs but were able to close mixed on Tuesday with traders uncertain of ongoing demand at the current high prices but also remaining friendly to the trend and the current hog supply. The packers were aggressive, according to the National Daily Direct Afternoon Hog report, purchasing 10,650 head with the price up $2.92. The weakness of pork cutouts might offset that gain as cutout prices fell $3.05. Packers are not expected to be as aggressive Wednesday, hoping to obtain more hogs but at lower prices. If a sufficient number of hogs are not purchased, they may step back up again Thursday or Friday.

	BULL SIDE		BEAR SIDE
1)	Traders bought the weakness of cattle futures, anticipating higher prices due to tight cattle supplies and the restriction of cattle imports from Mexico.	1)	Cattle futures may be at price resistance and may establish a sideways trading pattern.
2)	The weakness of boxed beef Tuesday is anticipated to be short-lived as demand continues to hold well.	2)	Recent beef exports have declined substantially, which may be due to the impact of high beef prices. Domestic demand may decrease as well.
3)	Hog supplies are tighter than expected and overall demand is strong. Packers continue to maintain a strong slaughter pace.	3)	Pork cutouts struggled last week and may follow the same pattern this week. That could trigger some liquidation by traders in anticipation of limited further upside potential.
4)	The April and farther out hog contracts made new highs again Tuesday as the trend remains up.	4)	The packers are not expected to be aggressive Wednesday in the cash hog market. They purchased a large number of hogs Tuesday and may wait to see the volume of hogs they may obtain at lower prices Wednesday.