Wednesday Morning Livestock Market Update - Traders Are Optimistic Over Pork Demand

GENERAL COMMENTS:

Traders are waiting for cash to provide direction. Higher boxed beef prices indicate strong demand, lending to the potential for packers to pay more for cattle. The anticipation has been for stronger cash, but at these lofty levels traders remain cautious. The decline in live cattle was offset by the strength of feeder cattle. The January contract gained $2.25, pushing it to a record high. There is no letup in demand for feeder cattle in the country as buyers need to buy or go without and pay higher prices next week. The price spread of $76.70 between the February live cattle and January feeder cattle contracts is unprecedented. Boxed beef prices were higher with choice up $0.51 and select up $3.34 moving the price spread to $15.78.

Hog futures found support with the April contract unable to push through price resistance while June and later contracts made new highs. It is impressive that the June and July contracts are over $103 -- a level that has not been seen in a while. Cutouts did not provide support with a gain of only a penny, but the fact that it did not decline provided hope that demand may increase and pork values climb. The National Daily Direct Afternoon Hog report showed cash up $1.00. Packers may need to purchase more hogs, lending to another day of higher cash.

	BULL SIDE		BEAR SIDE
1)	The trend in cattle futures remains up with traders feeling confident higher prices are to come.	1)	Cattle futures are overbought and managed-money traders are holding record-long futures positions. This could trigger a price retracement.
2)	Consumer demand remains strong as boxed beef prices continue to increase. This should keep the packers buying aggressively.	2)	If cash cattle trade at steady money at some point, the feedlots might turn more aggressive and they will move heavyweight cattle as quickly as possible.
3)	Hog futures have regained the losses since December and moved above technical resistance Tuesday.	3)	Hog futures have increased for four consecutive days and could stabilize or retrace as short-covering may have run its course.
4)	Traders anticipate demand for pork to improve as the seasonal weakness may be behind us.	4)	Cash hogs may be higher Wednesday, but that may be all for the week as packers likely will have purchased their needs. Cash remains in a sideways range.