General Comments:
Market pressure permeated across many commodity markets Thursday with much of the pressure stemming from the large decline of crude oil. You may wonder why crude oil has so much influence across a broad spectrum of the markets but it does because many times it is a barometer of other economic fundamentals or sometimes rumors. This would explain why both cattle and hog futures were under pressure despite positive fundamentals. Cash cattle traded higher in the North, which should have supported the market. Exports sales were also good with sales 24% higher than last week and 39% higher than the four-week average. This was needed in order to keep optimism alive and well as we move through spring. It certainly was good to see some higher cash this week, but it may be confined to the North. Cattle in the South look to remain steady with last week.
Hog futures did an about face Thursday with the exception of front-month April. Futures posted double-digit losses as contracts nearly matched the weakness of cattle. Fundamentals were bullish all around, showing no reason for the sell-off other than from outside influence. Packers remain aggressive even though margins are tightening. The large increase of cutouts indicates this market has more upside potential. The weakness of futures has not changed price direction with traders remaining interested in buying and holding long positions. Let's face it, hogs are not overly abundant, and demand is strong. The Export Sales report showed sales up 23% from the previous week and 5% above the four-week average. Higher prices are not slowing down international interest. Saturday slaughter is projected at 78,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | Higher cash trade in the North is what the market was waiting for, but outside influence pressured the market. This will not last. |
1) | Futures weakness could follow-through Friday as traders may bank some profits before the weekend. |
| 2) | A market sell-off without supporting fundamentals for the weakness may not last long. It will likely be viewed by traders as a buying opportunity. |
2) | There remains a premium to cash, which may make it difficult move futures much higher. |
| 3) | The large increase of pork cutouts indicates prices have not yet reached resistance. Consumers are buying, making it necessary for packers to continue to buy. |
3) | Hog futures are finally correcting an overbought market with the correction likely not over in one day. |
| 4) | Good exports sales should keep the uptrend intact as demand needs to be satisfied. |
4) | Packers may be near their spending limit and may hold steady or even lower their bids for a period of time. |
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