General Comments:
Cattle futures have become top heavy with the premium likely to erode further. The action Tuesday may have been a delayed reaction to the Cattle on Feed report, a pattern that has been seen at times in the past after previous reports. The market may be in trouble due to contracts breaking technical support, even though the market might be overall bullish. The break in futures does increase the potential that packers may not bid higher for cattle, even though they need them. They hope that lower futures might increase the desire of feedlots to sell rather than take the chance of holding them another week for no better than steady cash. But buyers may receive the directive from plants to buy at whatever price it takes to keep plants full and demand satisfied. Higher boxed beef should continue to provide support, but the concern is whether it will be enough.
Hogs again pushed higher Tuesday with only front-month April not making a new contract high even though it showed the most gain. Hog buyers are aggressive, continuing to bid higher. They want hogs now rather than playing the waiting game. Strong demand and room in cold storage is not a negative picture for price. The January Cold Storage report did show an increase of 11% from December, but stocks were 26% below a year ago. This could increase the caution of traders due to supplies increasing while prices escalated. Plants may be unwilling to move too much into storage at these high prices and may try to keep production closer to demand.
| BULL SIDE | BEAR SIDE | ||
| 1) | Futures made a significant correction, which is healthy for the market and should increase the desire of traders to buy the break as the liquidation phase might have run its course. | 1) | Cattle futures have broken support and fallen enough that funds may continue to liquidate, especially in light of the significant premium to cash in the April contract. |
| 2) | Packers are expected to need cattle and may increase bids in order to avoid another week of limited business. | 2) | Markets always fall faster than they increase and live cattle are no exception as we have seen over the past week in the April contract. |
| 3) | Hog buyers continue to remain aggressive each day as the insatiable appetite for pork knows no price bounds. | 3) | Hogs remain substantially overbought, which will cause serious liquidation if anything turns negative. Funds are extremely long and just a market correction could be overdone to the downside. |
| 4) | Frozen pork supplies are not burdensome, indicating demand is strong. Packers remain aggressive due to strength of cutouts. | 4) | If packers slow down on their aggressive spending spree, it could signal they have enough for the time being, resulting in lower cash bids. |
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