General Comments:
The cattle complex took it on the chin again Monday. Technical selling gripped the market as technical support was broken and stops were triggered. This makes two days of substantial selling. Fund liquidation usually runs its course in two to three days and then settles down. That does not necessarily mean the liquidation is complete, but it may slow down. The disappointment of steady cash last week and the potential for the same this week does not bode well as traders have become more cautious. There were no bids or offers shown Monday as it will be another week of testing the resolve of both packers and feedlots. Higher cash may be difficult to achieve given the weakness of futures and lower boxed beef. The Commitment of Traders report showed funds net sellers of 3,924 contracts reducing their net-long positions to 88,164. This report was for the week ended Feb. 23. This week's report should show the continuation of heavy liquidation.
Hog futures were able to post a rebound, keeping the uptrend intact. Cash was able to show a slight gain even though a substantial amount of hogs have already been purchased. Fundamentals remain bullish, but there is some growing concern over the lofty price. The seesawing action of cutouts may signal the bull market is running out of steam. However, traders remain willing to buy the breaks as the long-term outlook is for tighter hog supplies. The Commitment of Traders report showed funds adding 5,515 to their already net-long positions, bringing the total net-long positions to 72,780.
| BULL SIDE | BEAR SIDE | ||
| 1) | April live cattle futures declined $6.83 over the past two weeks and are now oversold and ready for a bounce. Traders might be interested in buying this break. | 1) | Funds are liquidating long positions and may still have a ways to go before the selling subsides. The idea of higher prices through April may be waning as futures trim the premium to cash. |
| 2) | Packers pulled a lot of cattle forward for slaughter last week and may need to step up to the plate this week to increase ownership. That may entail increasing cash bids. | 2) | Packers may not be willing to increase bids this week due to the drop in futures, Feedlots may be concerned lower prices may unfold and may be willing to move cattle at last week's price. |
| 3) | Hogs have proven to be resilient with traders stepping back in to buy the break. The uptrend remains intact. | 3) | Hogs may test support this week. Lower cutouts and a less than stellar export sales report could trigger fund liquidation. |
| 4) | Cutouts have been choppy recently, but demand remains strong. Strong demand is what will keep the trend intact as the market is not overwhelmed by supply. | 4) | Futures were unable to hold their highs Monday, which could mean buyer interest ran out at the higher levels. It may be more difficult to make new highs. |
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