It certainly was a victory for cattle futures to close mixed and nearly unchanged yesterday. Traders are assessing their positions after the steady rise of futures over the past two months and the upcoming Cattle-on-Feed report due out on Friday. Steady prices are keeping traders with long positions from liquidating, but they are also making them nervous. Traders resolve will be tested over the next three days. Buyers have been shy about posting bids as they need more direction before stepping out. Feedlots are willing to sell from $117 to $118 in the South and $185-188 in the North. Packers might have been hoping technical selling would erupt providing the opportunity to lower bids from last week. The market should show some better indication of potential business today. The premium of futures to cash and slight weakness in cut-outs may begin to have a bearish influence of the market.
Hogs have finally done it and eliminated the monkey on the back of all contracts except front-month December by closing the charts gaps that had been left since September 11. December was within 17 points of closing the gap. After closing the gap and triggering sell stops, some traders regrouped and bought into the market bringing it back up substantially from the lows potentially setting the stage for gains today. This certainly is positive technically. However, continued heavy hog runs and high slaughter activity is keeping price under wraps. A record weekly slaughter pace last week and higher weights keep near-term supply readily available. Hog slaughter today was estimated at 492,000. Futures are overdone to the downside and should be due for a correction.
| BULL SIDE | BEAR SIDE | ||
| 1) | The ability for futures to hold despite weakness in boxed beef is a testament to market strength. If placements don't come in as high as expected on Friday, the market could resume the uptrend. | 1) | Traders who have been holding long positions for quite some time may cash in rather than take a chance on the numbers on the Cattle-on-Feed report on Friday after the market closed. |
| 2) | A strong economy and good beef demand should continue to support the market. The current price consolidation in the market will relieve the overbought market. | 2) | Weakening boxed beef prices may give the impression the price rally might be over and current futures consolidation is the calm water before the fall. |
| 3) | Hog futures have closed the chart gaps in all but the December contract. This generated some trader interest bringing futures back up significantly from the lows with follow-through buying likely. | 3) | Large hog slaughter and heavier weights has been an anchor on the market and will continue to until slaughter numbers slow and hog supplies become current. |
| 4) | Supply is expected to reach its peak soon, which would slow heavy hog slaughter and relieve some of the pressure in the market. The market is entering the time of year when domestic demand for pork improves. | 4) | The rebound today after closing the chart gap does not mean futures will trend higher, but the market may consolidate at lower prices for a period of time. |
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