The standoff between packers and feedlots is going to come down to the wire, and it is highly unlikely feedlots will lose. They have held out this long, being confident bids will increase. Hogs have been showing impressive resilience with traders buying price dips. However, it is the end of the week and profits could be taken.
General Comments:
A good market just will not stay down. The technical correction of cattle futures at the end of last week has been negated in April and later contracts. The prospect of strong cash this week and another report of good weekly exports is keeping the market supported. Feedlots continue to hold for higher cash even though it will come down to the final day of the week. Feedlots seem to indicate to packers that they need to pay up or go home. It will be difficult for packers to make a case for steady prices with the strength of futures. Cutouts faltered again Thursday, providing some bearishness to the market, but not enough to matter this week. It will be interesting to see how long it will take Friday before a flood of business will take place.
Hog futures were impressive Thursday even though gains were minimal. February was the exception as price fell $1.35. The contact is one week away from the last trading day and price needs to converge to cash. April was again able to post a new contract higher, but quickly fell back once accomplishing the task and falling in line with the rest of the complex. A large increase in cutout values Thursday keeps traders friendly to the market. Exports sales were again strong with China still the top buyer. The concern over slowing exports to China still has not come to fruition and may not for the foreseeable future. The steady increase of open interest in futures indicates funds continue to be friendly to the market and are confident to add to their long positions. The path of least resistance seems to be up.
| BULL SIDE | BEAR SIDE | ||
| 1) | Feedlots are resolved to hold for higher cash. Packers will need to procure cattle and cannot afford another week of light cash activity. |
1) | The anticipation has been for higher cash and once that materializes, traders may liquidate some positions and lighten up prior to the weekend. |
| 2) | Strong demand and the rebound of cattle futures suggests good support under the market. Most futures contracts have regained losses from the end of last week, giving confidence to traders to add to long positions. |
2) | Boxed beef prices have fallen the past two days with another day of losses potentially indicating the price rally may be near an end. |
| 3) | The trend is up in hogs and the idea that slaughter numbers will decline through the spring may support future strength in cash. Export demand is expected to remain strong. Cold storage supplies have been reduced. |
3) | Hog futures are substantially overbought once again, which could trigger technical traders to bank profits before the weekend. |
| 4) | The strength in pork cutouts is impressive and one that cannot be ignored. Even with a higher number of hogs coming to the market, pork is moving to consumers rather than to inventory. | 4) | Packers may have reached the limit of what they will pay, leaving cash to remain steady at best or potentially lower next week. Any weakness in the hog complex could increase futures selling interest. |
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