Wednesday Morning Livestock Market Update - Optimism Over Higher Cash Cattle Fades

GENERAL COMMENTS:

Live cattle futures closed with minor gains, supported by lower numbers but marred by uncertainty over the cash trade. The earlier feeling of the potential for a higher cash cattle trade this week has given way to the potential for weakness. Packers have been able to purchase a significant amount of cattle for deferred delivery, which may limit their purchases through the holidays. Boxed beef prices were mixed, indicating demand may have stabilized for the time being. Choice boxed beef was down $0.58, with select up $1.80. Livestock futures have yet to find sufficient strength to move into and close the chart gaps. The bottom of the gap may be a strong resistance area that may be difficult to penetrate in the near term. The weather over the next week will not be conducive to feedlot performance and may hinder the desire to purchase cattle.

Hog futures found sufficient support to maintain the uptrend. The summer contracts closed above resistance. The strength was not due to cash or cutouts as they were both lower. The National Daily Direct Afternoon Hog report showed cash down $3.12. Pork cutout values declined $0.33. Packers did not purchase a large volume of hogs as they may be limiting their purchases due to the upcoming holiday. Traders remain optimistic over demand in the near term and are trading with the trend. The slaughter pace remains strong despite higher hog weights.

	BULL SIDE		BEAR SIDE
1)	Cattle futures have a chart gap that is not far above the market, which may be filled this week.	1)	The bottom of the chart gap in cattle futures may be a strong resistance level that may be difficult to break through ahead of the holidays.
2)	Traders may turn more bullish on the cattle market as support builds due to tight cattle supplies and the potential for that to remain for an extended period.	2)	Cash cattle are expected to trade lower this week as packers have been able to purchase a significant volume for deferred delivery.
3)	Hog futures are in a strong uptrend with some later months nearing new contract highs. The uptrend provides confidence to traders to trade with the trend.	3)	Packers may not be as aggressive this week, as the following two weeks are holiday weeks that will require fewer hogs.
4)	Although cash hogs and pork cutouts have not been consistently strong, the strong slaughter pace indicates demand has improved.	4)	Without continued support from cash and cutouts, the upside potential for hog futures may be limited.