Tuesday Morning Livestock Market Update - Government Investigation May Impact Futures

GENERAL COMMENTS:

Cattle futures decline for a third consecutive day as traders expressed caution in the market after making new contract highs in live cattle last week. Significantly higher cash trade last week did not provide further support to the market, as it had been factored in. Even though the expectation is for cash to be steady this week, traders are liquidating some positions. The action could indicate a top has been established in the market. However, that has been said numerous times over the past two years, and yet new contract highs are again made. Boxed beef prices were strong, with choice up $2.45 and select up $3.55. USDA and the Department of Justice are investigating the beef industry concentration, with the large packers under scrutiny. A major settlement announcement is expected later this week. The U.S. Attorney General indicated that he will be announcing a historic settlement that will directly affect the prices of proteins like chicken, pork and turkey. It is uncertain what that means, but it might have been one reason for the weakness.

Hog futures may have been lower for the same reason as just stated above. Futures moved below and closed below technical support. Traders have been unable to find solid, consistent fundamental support in the market and the uncertainty over the government investigation did not help matters any. It is unusual for packers to be aggressive on Monday, but they were with the National Daily Direct Afternoon Hog report up $1.90 on light volume. This may carry through today as they need to procure more hogs. Pork cutouts were lower with values down $0.23.

	BULL SIDE		BEAR SIDE
1)	Cattle supplies remain tight, and with the drought in cattle country and the fires that have taken place in Nebraska, the herd will not be rebuilt anytime soon.	1)	Consumer reluctance to pay for high-priced beef may have begun to trickle down into the market.
2)	It is unlikely the government will accomplish much to lower beef prices or other meat prices, as higher beef prices are likely not due to packers.	2)	Significantly high cash last week was met with lower futures prices. This may indicate that a top has been established in the market.
3)	Hog supplies are sufficient but not overabundant. Hogs are not backing up in the country.	3)	Hog futures fell below and closed below support. That does not bode well for the market, as those holding long positions are exiting the market.
4)	Hog slaughter remains strong as overall pork demand has improved and packers need to meet that demand.	4)	Increased hog slaughter keeps the market supplied and limits the upside price potential.