While cattle futures are entrenched in a sideways pattern with June in the range of $80 to $88, boxed beef cutouts made new all-time highs for the fifth consecutive day. Cutouts have gained over $100 during the past 15 trading sessions. This leaves a huge discount of futures to cash. Light cash trading took place in the north around $150 with light activity in the South, but price was less defined, ranging from $90 to $100. Trade should pick up Wednesday. Even through there is a large discount of futures to cash, there is a backlog of cattle that will need to move through the market as packing plants are ordered to resume or continue to operate. Packers will not be concerned over supply and will not bid up higher until supplies become current.
The strong price trend in hogs that developed since mid-April hit the pause button Thursday. Chart price gaps that were left on Tuesday were filled Wednesday. This could pave the way for technical traders to continue to buy into the market. Cutouts closed up sharply Wednesday as demand increases due to consumer concern over meat supply. As with beef, there is a backlog of pork, which will need to move through the system in plants that will be running at less than capacity.
| BULL SIDE | BEAR SIDE | ||
| 1) | Increasing beef demand is unfolding at a time during which plant capacity is reduced. The order to reopen processing facilities should keep beef supply on the store shelves and increase packer buying. | 1) | The large supply of market-ready cattle that backed up over the past month will need to work through the market. This will keep packers less likely to bid higher for the time being. |
| 2) |
The huge discount of futures to cash cannot be maintained and will pull futures higher in time. Retail demand is increasing, providing support to the market.
| 2) |
Futures may remain in a sideways range until slaughter plants can run work through the amount of cattle waiting to be processed. Many of these plants may run on a reduced workforce, slowing the process.
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| 3) |
Lean hogs have had a nice, steady run higher with the lower action Thursday closing the chart gap paving the way technically for higher prices.
| 3) |
With hog buyers keep cash prices somewhat steady, futures traders may sell the market as the possibility of a temporary technical top is in place.
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| 4) | Strong cutouts Wednesday should provide support and increase packer demand for hogs pulling the backlog of hogs through sooner. | 4) |
It will take some time for slaughter plants to get back to capacity, keeping the increase of cash prices less than the gains of cutouts.
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