Wednesday Morning Livestock Market Update - Early Cash Cattle Trade Sets Stage for Positive Week

GENERAL COMMENTS:

Cattle futures found support Tuesday, pushing the December contract to the highest close since March 21. The February contract closed near technical resistance, which may cap the strength in the near term as we move through the holiday period. However, fundamentals remain positive for demand and the potential for tighter feedlot supplies early next year. The boost in buying stemmed from some light cash cattle trade in Kansas at steady money with last week. It is unusual to see cash trade this early in the week and it gives the impression that Packers might be short-bought and want to purchase ahead to prepare for the Christmas and New Year holiday weeks. Packers continue to hold back on slaughter, but it does not seem to have much impact on the market. Cattle weights are high but are not overwhelming the market and are, in fact, positive and provide sufficient beef for demand with tighter cattle supplies. Boxed beef prices were mixed with choice down $2.41 and select up $0.31. Feeder cattle futures remained in step with live cattle, posting similar gains.

Hog futures fell after initial strength as the market began trading. This could be the beginning of a larger price correction. The correction would not be due to an overbought market but the liquidation of a record-long futures position moving toward the end of the year. The National Daily Direct Afternoon hog report showed cash up $1.09 with another day of aggressive buying by packers as they maintain a strong slaughter pace. Unfortunately, pork cutouts declined by $0.49, leaving traders cautious over the potential for ongoing demand moving through the end of the year. The WASDE report was positive for the hog market with the expectation of lower pork production and higher cash prices next year.

	BULL SIDE		BEAR SIDE
1)	The December live cattle contract broke through and closed above technical resistance with the February contract poised to follow suit. This may generate increased buying interest.	1)	Higher beef prices will eventually impact demand as consumers will reduce consumption by changing the amount of beef they consume.
2)	Cash trade at steady money early in the week will provide feedlots the confidence to hold for higher prices. Packers may be short-bought and increase their bids.	2)	The WASDE report was supportive to the corn market, indicating better demand and the potential for higher prices. Feedlots may want to move cattle rather than hold them and pay more for feed.
3)	The break in hog futures may be viewed as a buying opportunity. The fundamental outlook remains positive.	3)	Hog futures may have seen the first day of a larger price correction. Some liquidation may already be taking place for the end of the year.
4)	Packers have been aggressive buyers the first two days of the week. They may remain aggressive today as they want to purchase hogs sooner rather than later.	4)	Packers may not be as aggressive the rest of the week as they have already purchased a substantial volume of hogs.