General Comments:
There was not much fanfare in cattle futures with price swings of about $1.00 in most contracts. Futures were able to close higher in all but front-month April as its strength may be limited to cash. Cash cattle did not trade higher Thursday, nor were they expected to. Once business was done earlier in the week, there was little hope for better prices. Futures are trying to turn higher but are having a difficult time breaking out to the upside. Open interest with funds net-long leaves the market susceptible to heavy selling if they get bored with a market that is not trending higher, and one that may not be supported with stronger underlying cash. Front-month April holds a premium to cash and may continue to do so for a few weeks in anticipation of stronger seasonal demand and higher cash. However, five weeks of steady cash and fluctuating boxed beef prices may not support much upside potential. Weekly exports were disappointing compared to the previous week but were higher than the four-week average. Futures are not expected to do much Friday, but rather coast to the end of the week.
Hog futures exploded higher again, setting new contract highs across the board. April led the charge finally breaking out to a new contract high. Even though weekly export sales were 46% below last week and down 17% from the four-week average, the market did not care. A lower National Direct Hog Report did not phase traders wanting to continue to add to long positions. The new strain of African swine fever that has spread across China continues to remain a bullish scenario for demand of U.S. hogs. It has been another banner week for futures, making it ripe for some profit-taking Friday as futures are again in overbought territory. Saturday's slaughter is project to be 112,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Cattle futures were able to close moderately higher, which may increase the interest of traders to buy into the market. |
1) | Cattle futures are having a difficult time turning higher as underlying cash is not supporting higher futures. |
| 2) | Cash has not been increasing, but neither has it been decreasing very much overall. Continued strong demand may keep solid support under the market, minimizing downside risk. Funds may step back in. | 2) | Funds may have liquidated more long positions, which may be seen on the Commitment of Traders report. The inability of futures to trend higher may cause further liquidation as funds become bored with a flat market. |
| 3) | Now contract highs across the board may indicate the market is a long way from price resistance. Traders continue to favor the long side of the market. |
3) | The large increase of hog futures Thursday quickly pushed futures into overbought status. This could result in some profit-taking into the weekend. |
| 4) | China is expected to remain a significant buyer of pork for the foreseeable future. Their hog herd is a long way from being rebuilt with U.S. pork readily available. |
4) | Packers may move into a less aggressive posture after the large increase of cash this week or should I say, the past few weeks. |
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