Wednesday Morning Livestock Market Update - Strong Boxed Beef May Provide Support

GENERAL COMMENTS:

The resumption of processing at the Fort Morgan plant and the exceptional strength in boxed beef on Monday resulted in cattle futures opening higher and trading in positive territory on Tuesday, but the early strength waned, resulting in limited price gains by the close. Boxed beef prices were exceptionally higher again on Tuesday, with choice up $11.58 and select up $2.03. Boxed beef prices are regaining ground very quickly. It is difficult to say whether the strength in boxed beef will be sufficient for packers to bid aggressively for cattle this week or if they will hold and try to improve their margins further. The Cattle on Feed report will be released on Friday and may limit futures movement ahead of the report. Cash trade may also be delayed until then.

Hog futures could not find footing after the open, resulting in triple-digit losses by the close. Bullish traders have been unable to find positive fundamentals, resulting in the path of least resistance being lower. The National Daily Direct Afternoon Hog report showed cash up $0.90 with a substantial volume of hogs traded. Pork cutouts were up $0.37. Both of these gains may have limited influence on the market Wednesday. Packers will need to purchase more hogs, but they are unlikely to be aggressive given the available supply of market-ready hogs.

	BULL SIDE		BEAR SIDE
1)	The exceptional strength of boxed beef prices so far this week indicates demand has increased and may continue to do so.	1)	The cattle market has not reacted much to the recent bullish news as traders remain cautious about the overall impact.
2)	There may be limited downside potential in cattle prices as cattle supplies are low and there is little rebuilding of the beef herd.	2)	Packers have cattle purchased for deferred delivery and may not need to be aggressive in the cash market this week.
3)	Hogs fell significantly and may be overdone to the downside. Short covering may take place.	3)	New contract lows in hogs provide little reason for traders to be bullish. Support remains elusive.
4)	Lower prices will cure lower prices. Demand for pork should improve as consumers stretch their food dollar.	4)	Packers have had little reason to become aggressive in the cash market as hog supplies remain plentiful.