Wednesday Morning Livestock Market Update - Hog Futures May Show Further Strength

GENERAL COMMENTS:

Selling pressure Tuesday may have been due to the discovery of the New World screwworm on a calf just 60 miles from the U.S. border. It could have been from the impact of high fuel prices on consumer buying power. It could have been the liquidation of contracts due to live cattle being near record-long positions on the recent Commitments of Traders report. It could be due to select boxed beef prices moving above choice as consumers are purchasing more, less-expensive cuts of beef. It could have been influenced by the Justice Department's antitrust division examining whether large suppliers manipulated the market, resulting in higher beef prices. Any one of these, or a combination of them, could have influenced the market. Boxed beef prices increased on Tuesday, with choice up $2.62 at $386.18 and select up $3.59 at $387.20. Packers continue to reduce slaughter in an attempt to improve margins.

The nearby hog futures gaped higher on the open Tuesday and never looked back. That gives the impression the market had been overdone to the downside. Unfortunately, those wanting to liquidate their short positions had to do it at a higher price than anticipated, as numerous other traders had the same idea. Leaving the gap on the opening carries the risk of futures closing the gap at some point. The bigger picture may be that hog runs could be tightening soon and the market may be indicating the beginning of that trend. The National Dairy Direct Afternoon Hog report showed cash up $0.52. Pork cutout values declined by $0.86.

	BULL SIDE		BEAR SIDE
1)	Lower cattle supplies will continue with price weakness potentially being short-lived.	1)	The discovery of the New World screwworn 60 miles from the Mexican border indicates it is not a matter of if, but when it will be discovered in the U.S.
2)	The discovery of the New World screwworm 60 miles from the Mexican border may keep the border closed for cattle imports.	2)	The continued high fuel prices may have an impact on beef demand this spring and summer. Consumers will look for alternative sources of protein.
3)	Hog futures gapped higher on the open on Tuesday, as the market had been oversold. The correction may continue Wednesday.	3)	Hog futures left a chart gap on Tuesday, which likely will be filled at some point.
4)	Hog slaughter continues to run higher than a year ago and will eventually tighten supplies.	4)	Hog slaughter has increased, but packers have not had to be consistently aggressive to purchase the hogs they need. Supplies are plentiful.