Wednesday Morning Livestock Market Update - Cattle Futures May See Limited Upside Potential

GENERAL COMMENTS:

Cattle futures rallied on their own accord and not a reaction to bullish news. The weakness of Monday was reversed as the perception of traders turned positive. There seemed to have been a change in perception that packers could be more aggressive this week, and cash might trade higher. It is still too early to assess cash trade, but market strength would lend itself to that idea. However, boxed beef prices suffered a substantial loss, with choice down $4.17 and select down $7.10. This eliminated the gains on Monday and then some. This may indicate that the weakness in boxed beef may continue. The action on Tuesday may have been traders moving the market more closely in line with cash.

Hog futures slipped for the third consecutive day, eliminating more of the gains last week. It appears that the gains last week were due to holiday trade and end-of-the-month positioning. Packers were not aggressive on Tuesday, with the National Daily Direct Afternoon Hog report down $0.35. Pork cutouts were unable to provide support with values down $0.57, declining by the same amount they gained on Monday. Packers need to purchase more hogs and should be more aggressive today. However, it appears that higher hog weights have led to a reduced need for maintaining an aggressive slaughter pace.

	BULL SIDE		BEAR SIDE
1)	April and later live cattle and all feeder cattle futures contracts moved through and closed above technical resistance on Tuesday. This may trigger further buying interest.	1)	The large decline in boxed beef prices eliminated the gains on Monday and keeps the downtrend in boxed beef prices intact.
2)	There is no doubt that cattle numbers are tight and will remain that way for some time to come.	2)	The substantial volatility will continue in the cattle markets, depending on news or lack thereof on any given day.
3)	Hog futures have declined for three consecutive days. That is generally the duration of a liquidation phase and is what seems to have taken place after the strong gains last week. This could increase buying interest.	3)	Hog futures have been unable to maintain the gains of last week, indicating the strength was not fundamentally induced.
4)	Hog futures could be developing a head-and-shoulders bottom, which could provide technical traders with the confidence to buy into the market.	4)	Higher hog weights continue to provide plenty of pork to the market, and packers are less aggressive in the cash market.