Wednesday Morning Livestock Market Update - Further Strength Expected

GENERAL COMMENTS:

Cattle have resumed the uptrend after a short period of choppiness. Higher cash cattle last week and the expectation for similar gains this week continue to provide confidence for traders to buy and hold. After all, what is there to hold this market back? The rhetoric from the government a while back that they were going to do things to reduce beef prices was just talk. The little that was implemented had no impact, and there has been no further discussion on it, as their attention is turned to other things. Beef prices are strong due to supportive fundamentals, and that will not change much anytime soon. Boxed beef prices were higher, with choice up $2.50 and select up $2.32. The March feeder cattle contract is near the chart gap that has remained since mid-October. There is a strong possibility that the gap will be closed. The other contracts will follow suit.

Hog futures continue the higher trend with new contract highs again being established. The July contract closed above $111 with the potential to move above $112 soon. Contracts closing near the day's highs lend themselves to further strength today. Strong demand continues to provide confidence to traders to add to their long positions. Pork cutout values increased, posting a gain of $1.67 on Tuesday. The National Daily Direct Afternoon Hog report jumped $4.15 with moderate purchasing activity by the packers. Higher cash is expected again today. Strong slaughter is being maintained to meet demand.

	BULL SIDE		BEAR SIDE
1)	The resumption of the uptrend in cattle futures increases the likelihood that the chart gaps above the market will be filled.	1)	The chart gaps above the cattle markets may be a level of strong resistance where selling could increase due to profit-taking.
2)	Boxed beef prices have been increasing as slower slaughter and good demand are resulting in higher beef prices.	2)	We know that markets cannot go up forever and will reach a level of consumer price resistance.
3)	The large increase in cash hogs on Tuesday indicates the packers need hogs, and supplies may not be as abundant as they have been.	3)	Hog futures are overbought, which could trigger selling if there is any indication of fundamental price weakness.
4)	The uptrend in hog futures continues to pull more buyers into the market.	4)	Continued higher prices for cutouts may eventually slow pork demand and reduce packer buying.