Thursday Morning Livestock Market Update - Hog Futures May Show Further Short-Covering

GENERAL COMMENTS:

The August live cattle contract initially fell to support before strong buying surfaced, resulting in a strong bounce. Feeder cattle did not bounce from support, but followed the pattern of live cattle closing with triple-digit gains in the August and September contracts. This may set the stage for the beginning of a retracement of the losses of the past two weeks. However, the continued weakness of boxed beef prices does not bode well for near-term demand. Packers are expected to remain tight-fisted and have shown a few bids as much as $10.00 lower. I do not believe feedlots will be willing to sell cattle at that much of a loss, but the consensus is that cash will be lower. Boxed beef prices on Wednesday showed choice down $4.57 and select down $2.80. Although cattle closed significantly off their lows on Wednesday, futures remain in a downtrend.

Hogs made a substantial turn on Wednesday with traders buying aggressively. Triple-digit gains were seen across the board, with the October contract showing the most strength, gaining $3.87 and price moving back to the highest level since June 3. The National Daily Direct Afternoon Hog report was higher as expected, with a gain of $1.37. Packers are not expected to be aggressive the rest of the week, as they have purchased a significant volume of hogs so far. Pork cutout values increased $0.25. The anticipated price retracement may continue, with further upside potential possible. The weekly average hog weight declined to 285.2 pounds.

	BULL SIDE		BEAR SIDE
1)	The rebound in cattle futures on Wednesday following initial weakness may indicate liquidation has run its course, and buyers will turn more aggressive.	1)	Even though cattle futures rebounded Wednesday, the downtrend remains intact.
2)	Cattle supplies remain low, leaving limited downside price potential for cattle and beef prices.	2)	The continued weakness in boxed beef will result in packers maintaining lower bids for cattle.
3)	The strong gain in hog futures may indicate that a price retracement is underway and that further gains will be seen.	3)	Weekly hog weights remain 2.5 pounds higher than a year ago. This leaves plentiful pork supplies.
4)	Weekly hog weights declined by 1.7 pounds to an average of 285.2 pounds.	4)	The upside price potential may be limited after short-covering runs its course. Cash and cutouts need to see consistent support.