Cattle futures traded in a range of about $1.50 managing to close slightly higher yesterday. Futures remain entrenched in a tight sideways trading pattern as the market awaits the Friday Cattle-on-Feed report. Analysts estimate on-feed numbers at 101.2%; placements at 112.2%; and marketed at 99.6%. Cash cattle beginning to trade at higher prices than last week was not enough to spark trader interest in increasing their long positions. Higher cash has already been factored into the market. Offsetting the bullishness of higher cash trading was the decline of boxed beef prices. Fund traders remain friendly to the market and remain active buyers as seen by increasing open interest. However, the overbought market and potential for a market correction, could trigger significant liquidation.
Hogs fell out of the proverbial bed again yesterday with most contracts trading limit down near the close, but were able to close slightly off the bottom. Closing the chart gaps did nothing to turn traders more aggressive as market fundamentals and technical selling are running the market. Futures succumbed to heavy selling pressure as a statement was made over the idea that a Phase 1 U.S. and China trade agreement may not be completed until next year. This should have already been factored into the market as this possibility has been floating around for a while already, but such as not the case. Futures fell on the idea that a U.S./China trade deal may not happed prior to the end of the year, so the news overnight that China has invited U.S. negotiators to Beijing may whip futures back to the upside again. Pork cut-out values were higher, however the path of least resistance was down.
| BULL SIDE | BEAR SIDE | ||
| 1) | Cattle futures continue to consolidate indicating support is holding with limited concern by traders hold long positions into the Cattle-on-Feed report. | 1) | Cattle have been unable to push futures higher. The longer the market consolidates, the more prone it is to liquidation. |
| 2) | Open interest in cattle futures indicates fund traders remain willing buyers despite the lofty prices. Price dips are being viewed a buying opportunities. | 2) | The Cattle-on-Feed is estimated to show large placements. If it comes in at expectations or higher, futures selling could unfold quickly. |
| 3) | Significantly higher pork cut-outs should provide some support to futures. Traders might be interested in trying to bottom-pick the market looking for a price retracement. | 3) | All hog contracts touching limit down near the close suggests further selling tomorrow. The direction will be down today until some other news sparks trader interest. |
| 4) | A severely oversold market could cause short-covering as it become more difficult to press the market lower. Good product movement and indications of hog runs slowing may support. | 4) | Further news of a delay of the U.S./China trade Phase 1 agreement until 2020 will keep sellers more aggressive even though the market is oversold. |
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