Tuesday Morning Livestock Market Update - Margin Liquidation May Futures Pressure Cattle

GENERAL COMMENTS:

The focus was on reopening the U.S. border to feeder cattle imports, and the trade did not like it. The weakness seen over the past few weeks was clearly due to the weakness of boxed beef and lower cash. Even though the reopening of the border had been a possibility discussed for some time, it caught traders off guard. It was Katy-bar-the-door selling at the beginning of trading. The deferred contracts closed under substantial pressure, with feeder cattle limit down. It is likely further liquidation will take place as margin calls may force more traders out of the market. Boxed beef prices were mixed, with choice up $1.65 and select down $1.55. Higher choice boxed beef may have little influence on the trade Tuesday.

Hog futures were not immune to the selling that surfaced in other markets. The pressure seems to be from the negative attitude in many commodity markets. This may subside with the potential for hog futures to rebound somewhat Tuesday. The August contract was able to close in positive territory as it moves closer to cash settlement and will remain close to cash. Packers were aggressive to begin the week with the Daily Direct Afternoon Hog report up $1.32. They should remain aggressive Tuesday as they will want to buy early in the week. Pork cutout values declined $0.18.

	BULL SIDE		BEAR SIDE
1)	The negative reaction on Monday may have been overdone as liquidation overwhelmed the market.	1)	Follow-through selling is expected Tuesday as some traders will liquidate due to margin calls.
2)	The reopening of the border for cattle will be done in stages, with the influx of cattle not overwhelming the market. Cattle supplies will remain low.	2)	The bearish attitude in the cattle market will be difficult to overcome unless boxed beef prices find support.
3)	The pressure on hog futures seemed more as a spillover from other commodity markets and not a negative turn in fundamentals.	3)	Hog futures are overbought and may see further liquidation as the market corrects.
4)	Packers are expected to be aggressive in the cash hog market again Tuesday.	4)	The steep discount of October to August indicates that traders anticipated a decline in hog prices and a slowdown in demand.