Tuesday Morning Livestock Market Update - Cattle Futures May Show Further Weakness

GENERAL COMMENTS:

The initial strength in cattle futures waned Monday with contracts posting a steady decline throughout the day. Traders seem to have looked past the Cattle on Feed report and are focusing on the cash potential this week. Boxed beef showed substantial gains, with choice up $2.50 and select up $7.01. This moved the average choice value $0.05 above select. It is uncertain whether the cattle futures were influenced by the Justice Department's antitrust division examining whether large supplies manipulated the market in any way, resulting in higher beef prices, according to a report by the Wall Street Journal. However, the weakness may have been the result of traders being uncertain about the strength of cash this week and that the market is technically overbought. Feeder cattle prices have also shown some weakness recently, but that may only be temporary.

Hog futures found a reason for nearby contracts to close higher. Higher cash and cutouts, and the market being oversold, may have resulted in the buying interest. Later contracts closed slightly lower as traders remained uncertain over longer-term prices. However, if nearby contracts post further gains Tuesday, it may trigger further short-covering in the deferred contracts. The National Daily Direct Afternoon Hog report showed cash up $1.85. Packers may be aggressive again Tuesday as they step up and purchase after letting prices fall last week. Pork cutout values increased $1.00, potentially setting the stage for a stronger week.

	BULL SIDE		BEAR SIDE
1)	Beef prices are high due to tight cattle supplies and continued strong consumer demand. It may not be from market manipulation.	1)	Traders are concerned cash cattle prices may be lower this week. Feedlots can only hold cattle for so long before they need to bring them to market or lose money by continuing to feed them.
2)	Crude oil prices have been in a downtrend the past two weeks which may eventually lower fuel prices and improve the financial situation of consumers. Beef demand may remain strong.	2)	Cattle futures are overbought with fund traders holding near-record long positions. Further liquidation may be seen.
3)	Hog futures are oversold and the trading action on Monday may indicate traders are unwilling to press the market to the downside. This may result in short-covering.	3)	The strength of cash and cutouts on Monday does not indicate the hog market has found support.
4)	Pork may find more space on the grill this summer due to high beef prices. This may improve demand.	4)	Hog futures are oversold, but that is meaningless if traders are unable to find a reason to cover their short positions.