General Comments:
Cattle futures were able to close higher across the board Monday with some triple-digit gains scattered across both feeder cattle and live cattle contracts. Support certainly did not stem from boxed beef as they showed a significant decline. It seems that the winter storm and a forecast for significant rains over the next two weeks may have underpinned the market. Traders like to trade the news and events even though they may not have lasting impact on the market, it does provide volatility, which in turn, provides opportunity to make money. Front-month April could do no more than hang on to a slight gain while June almost reached back to the high. Later contracts set new highs, which should cause more short-covering and increase buyer interest. The question now is whether this is a foretaste of the direction of cash or whether it is irrational exuberance. Neither packers nor feedlots tipped their hand Monday. Cash could go either way this week as feedlots may be interested in selling like they have been the past two weeks. Or they could feel more confident to hold out due to the strength of futures. Funds were net buyers of 1,091 futures contracts, according on the Commitment of Traders report. This brings their net-long positions to 81,660.
Hog futures were bound to take a dip in price as the market became overbought. Packers remained aggressive Monday, which brought futures off their lows by about $1.00, keeping the uptrend intact. Pork cutouts remain very strong and that strength along with higher cash will keep traders friendly to the long side of the market. It certainly appears pork prices have not found consumer price resistance, which is keeping packers bidding higher. Second quarter pork production is expected to dip down to the lowest for the year. That potential, along with substantially lower cold storage levels, may keep packers aggressive as they continue to look ahead to procure the needed amount of animals. The Commitment of Traders report showed funds were net buyers of only 154 contracts, pushing net longs to 74,287 contracts.
| BULL SIDE | BEAR SIDE | ||
| 1) | May and later feeder cattle futures and August and later live cattle contracts set new highs Monday. Further buying interest is expected. |
1) | Futures jumped Monday without any solid support from underlying cash. Weaker boxed beef and the potential for steady cash may dampen the enthusiasm over the next few days. |
| 2) | The weather and its impact on cattle and cattle weights in the near-term may result in packers increasing cash prices to entice feedlots to move cattle rather than hold in order to put on weight. |
2) | Feedlots have been able to purchase cattle over the past weeks at steady to slightly lower prices. They may hold for the same again this week. |
| 3) | Cash hogs and cutout are on fire with no price resistance indicated. The correction of futures Monday was necessary to keep a bullish market intact. |
3) | It will take further weakness of hog futures to correct the overbought status of the market. |
| 4) | Strong demand needs to be met and the only way is to increase prices in order to keep hogs coming to the market. | 4) | The Commitment of Traders showed funds were not as aggressive to add to their long position even through the market has been in a strong uptrend. They may rather hold for the time being and be ever so mindful of any news, which could trigger liquidation. |
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